Performance review
3Q23 performance is lower than we expected.
The company announced 1-3Q23 results: income 62.09 billion yuan, down 12.4%; return to the mother net profit of 50 million yuan (net loss of 890 million yuan in the same period last year), lower than we expected, mainly due to the overall weak consumer environment and increased market competition; deducting non-net loss of 370 million yuan (net loss of 640 million yuan in the same period last year). From a quarterly point of view, Q1/Q2/Q3 revenue fell 12.6%, 15.2%, 9.5%, respectively, and deducted non-net profit of 6.2%, 5.2%, and 4.7 million yuan, respectively. The company's measures to improve quality and efficiency continue to promote, pay attention to the progress of profitability repair.
Trend of development
1. Offline channels are combed and tuned, and the online share continues to increase. Revenue in the first three quarters fell 12.4%, of which Q3 revenue fell 9.5%. On the one hand, the retail channel competition is fierce, on the other hand, the company continues to comb the tail stores. According to the company's website, the total number of stores as of October 29 was 998, a net decrease of 10 compared with 1H23. The company continues to promote omni-channel integration, Q3 online business revenue of 4.34 billion yuan, an increase of about 8.2%, revenue share of about 3.6ppt to 21.6%, of which Yonghui living App accounts for about 53.5% of home business, further improving 2.2ppt compared with the first half of the year, covering 930 stores.
2. The increase in gross profit margin leads to a steady improvement in profitability. Q3 gross profit margin also increased to 20.9%, we expect to benefit from the improvement of supply chain efficiency and category structure optimization. On the cost side, the company carried out in-depth measures to reduce costs and increase efficiency, during which the cost rate slightly increased by 0.4ppt to 23.6%, which remained relatively stable, including sales, management + R & D, and financial expense rates + 0.7/-0.2/-0.1ppt respectively compared with the same period last year. In addition, the loss of fair value changes narrowed to 4.771 million yuan from 250 million yuan in the same period last year. Under the combined influence, the Q3 homing net interest rate increased by 1.9ppt to-1.6%, and the non-net interest rate increased by 1.0ppt to-2.4%.
3. Continue to promote business transformation and supply chain construction, and pay attention to the progress of profitability repair. 1) Business transformation to improve efficiency: in April this year, the company announced that nearly 300 stores had been optimized in batches, and nearly 70% had been completed by early August, and the Q2 customer traffic of some refurbished stores increased by nearly 10% compared with the previous month. To comply with the trend of rational consumption, in October this year, the company added "authentic discount stores" in stores nationwide, and added discount zones on APP and Mini Program online at the same time, and screened discount pools through its own supplier system and YHDOS digital system, so as to improve product efficiency. 2) supply chain construction: the company continues to promote the "warehouse-store integration" model to optimize the performance efficiency of home business, and 940 e-commerce warehouses have been launched by August, helping to increase revenue and improve the efficiency of each link; in addition, the company's own-brand supply chain construction has progressed steadily, and in October this year, the company has built 800 + direct acquisition points across the country, which is conducive to enhance the product price advantage and the level of differentiation. Pay attention to the progress and effectiveness of the company's transformation and upgrading measures.
Profit forecast and valuation
Taking into account the weak short-term consumption and fierce market competition, we have lowered our income forecast for 2024 by 4% to 81.5 billion yuan, and the net profit forecast for 2023-24 from 13 million yuan to-250 million yuan. The current share price corresponds to 2023 Universe, 0.4 apiece, 0.3 times Pamp S in 24 years. Maintain the rating of the outperforming industry, consider the continuous progress of the company's transformation and upgrading measures, and maintain the target price of 3.9 yuan for the time being, corresponding to 0.4 times 2023-24, with 25% upside space.
Risk
The competition in the industry intensifies, the progress of business transformation is not as expected, and the macro environment is under pressure.