The company released its 2023 three-quarter report on October 27. The third quarter of 2023 achieved revenue of 4.788 billion yuan, an increase of 4.46% over the previous year; net profit of the mother was 0.24 million yuan, an increase of 71.55% over the previous year, and net profit after deducting non-return mother's net profit of 19 million yuan, an increase of 820% over the previous year. The basic EPS is 0.04 yuan, and the weighted average return on equity is 0.94%.
Brief review and investment advice.
1. Revenue for the third quarter of 2023 increased 4.46% year over year. In the first three quarters of 2023, the company achieved revenue of 13.879 billion yuan, a year-on-year decrease of 0.6%, of which 3Q achieved revenue of 4.788 billion yuan, an increase of 4.46% over the previous year. The main business of 1-3Q declined by 2.42%. Among them, the revenue of integrated supermarkets increased by 0.5% year on year, and the revenue of community fresh, rural supermarkets, department stores and other business formats each decreased by 8.17%, 1.96%, 1.23%, and 2.97%; it is estimated that 3Q's main business increased 3.67%, with revenue from integrated supermarkets, rural supermarkets, department stores, and other business categories each increasing 9.03%, 5.59%, 20.36%, 12.93%, and the revenue of community fresh supermarkets fell 7.15% year on year. Revenue in Shandong decreased by 3.51% in the 1-3Q period, and revenue in regions outside the province increased by 3.28%.
Thirty-one new direct-run stores were opened in the third quarter, and opening accelerated in a single quarter, including 6 integrated supermarkets, 9 community fresh food supermarkets, 1 rural supermarket, 10 Yueji snack stores, 5 other businesses, and 16 stores closed. The total number of direct-run stores at the end of the period was 976, including 847 and 129 in Shandong and regions outside the province; 47 franchise stores, an increase of 14 over the beginning of the year.
2. The gross profit margin of the main business in the third quarter of 2023 was 19.22%, a year-on-year decrease of 0.05 pct. The company's comprehensive gross profit margin for the first three quarters was 23.61%, up 0.37pct year on year; 1-3Q main business gross profit margin was 19.45%, up 0.22pct year on year. The 3Q consolidated gross profit margin was 22.71%, up 0.48pct year on year; 3Q's main business gross profit margin was 19.22%, down 0.05pct year on year.
(A) By business format, the gross margin of 1-3Q23 integrated supermarkets, rural supermarkets, department stores, and other business categories increased by 0.26, 0.37, 0.02, and 1.1 pct, respectively, and the gross margin of community fresh food supermarkets decreased by 0.01pct year-on-year. It is estimated that in 3Q23, the gross margin of integrated supermarkets increased by 0.07 pct year on year, while the gross margin of community fresh food supermarkets, rural supermarkets, department stores, and other business formats decreased by 0.3, 0.21, 20, and 0.09 pct year-on-year, respectively.
(B) By region, the gross margin of the Shandong region decreased by 0.09pct year on year in the 1-3Q period, and the gross margin of regions outside the province increased by 1.9 pct year on year.
3. The cost rate was reduced by 0.28 pct during the third quarter of 2023. The company's expense ratio for the third quarter was 21.44%, a year-on-year decrease of 0.28pct; among them, the 3Q sales expense ratio increased by 0.21pct to 18.26%; the management expense ratio decreased by 0.07pct to 1.97%; the R&D expense rate was 0.07% (3Q22 had no R&D expenses); and the financial expense ratio decreased by 0.5pct to 1.15% year-on-year.
4. Net profit for the third quarter of 2023 was 24.37 million yuan, an increase of 71.55% over the previous year. The total profit of 3Q was 39.91 million yuan, up 120% year on year, net profit was 24.37 million yuan, up 71.55% year on year, net profit after deduction of 19 million yuan, up 820% year on year. Non-recurrent profit and loss was mainly government subsidies of 10.66 million yuan. The net operating cash flow for the 1-3Q period was 1,675 million yuan, up 9.71% year on year.
Maintain judgment on the company. We believe that the company is an excellent target that combines a medium-term growth logic with a high barrier in the supply chain. ① Strong core competitiveness: intensive regional layout, multi-format collaboration, supply chain construction, and construction of competitive barriers; ② Continued loss reduction trends outside the province: Since 2022, under effective control, the three other provinces have shown significant loss reduction trends. We believe that stabilizing the same store+reducing losses outside the province is expected to jointly release the company's profit elasticity over the next three years.
③ Innovate and test the waters of retail discount stores: The snack chain brand “Yueji Snacks” was launched to position a one-stop snack collection store with the ultimate cost performance ratio. Based on the basic operation of this business model, franchise cooperation has been opened to accelerate market expansion and enhance the collaborative advantages of multiple business formats.
Update earnings forecasts. Net profit for 2023-2025 is estimated at 290 million yuan, 405 million yuan, and 508 million yuan, up 437%, 39.7%, and 25.3% year-on-year; the current market value corresponds to 2023-2025 PE 25 times, 18 times, and 14 times, and PS 0.39 times, 0.37 times, and 0.33 times PS, respectively. Considering that the company is actively innovating business formats and the trend of reducing losses outside the province is becoming more clear, it was given 0.5-0.6 times PS in 2024, corresponding to a reasonable market value range of 9.9 billion yuan to 119 billion yuan, and a reasonable value range of 15.26 to 18.31 yuan, giving it an investment rating of “superior to the market”.
Risk warning. The speed of store opening and integration results have fallen short of expectations; the offsite cultivation period has been lengthened; e-commerce channels have been diverted; and competition has intensified.