Description of the event
The company disclosed its three-quarter report for 2023. In the first three quarters, it achieved operating income of 62,088 billion yuan, a year-on-year decrease of 12.44%, net profit of 52.29 million yuan, loss of 887 million yuan for the same period last year, net loss of 375 million yuan after deduction of net loss of 375 million yuan, and loss of 642 million yuan for the same period last year. In the third quarter alone, we achieved operating income of 20.061 billion yuan, a year-on-year decrease of 9.54%, net loss of 321 million yuan, net loss of 321 million yuan, net loss of 775 million yuan for the same period last year, net loss of 474 million yuan after deducting non-return to the mother, and a loss of 737 million yuan for the same period last year.
Incident comments
The decline in revenue is slowing down. Under the optimization of operating efficiency, gross margin continues to increase. In the third quarter, the company opened 1 new supermarket store and signed 6 new supermarket stores in Zhangjiakou, Hebei. In the first half of the year, the company opened 4 new stores and closed 29 stores. In Q1-Q3 of 2023, the year-on-year growth rate of the company's revenue was -12.6%, -15.2%, and -9.5%, respectively, and the Q3 decline narrowed slightly.
Non-return net profit for Q1-Q3 was 620 million yuan, -52 million yuan, and -4.7 billion yuan respectively. Of this, Q2-Q3 reduced losses by 0.15 million yuan and 262 million yuan respectively. The loss reduction in the third quarter alone was not achieved by significant losses. Looking at the breakdown, in Q1-Q3, the comprehensive gross margin was 22.88%, 20.83%, and 20.88%, respectively, up 1.60, 1.66, and 1.85 percentage points year-on-year respectively. The trend of increasing gross margin continued, mainly due to the initial results of digital transformation, and overall operating efficiency improved. On the cost side, the sales, management, R&D, and financial expenses for the three quarters alone were 19.13%, 2.40%, 0.35%, and 1.70%, respectively, with year-on-year changes of +0.70, 0, -0.21, and -0.08 percentage points. The total cost rate for the four periods was 23.58%, a total increase of 0.41 percentage points. Overall, the supermarket business is still in a recovery period due to weak consumer willingness to spend, and there is some pressure on the revenue side. However, the optimization of the company's endogenous operating efficiency has contributed to an increase in gross margin, achieving a month-on-month increase in the reduction margin of non-profit losses in the single third quarter. After adding profit and loss from disposal of illiquid assets, government subsidies, and financial asset investment income, the company's net profit to the parent reversed losses in the first three quarters and achieved a profit of 52.29 million yuan.
The expansion of stores remained relatively cautious, and the online business achieved excellent growth. It is expected that in the third quarter, the company will take the initiative to optimize stores, eliminate some loss-making stores, and maintain a more cautious pace in opening stores. In terms of online business, online business revenue for the first three quarters was 12.26 billion yuan, up 5.69% year on year. The growth rate was higher than total revenue, accounting for 19.75% of main revenue, an increase of about 1 percentage point over the first half of the year. In the first three quarters, the “Yonghui Life” home-based business covered 930 stores, achieving sales volume of 6.38 billion yuan, an increase of about 1%, an average daily order volume of 311,000 orders, and an average monthly repurchase rate of 49.8%; the third-party platform to home business covered 908 stores, achieving sales volume of 5.88 billion yuan, a year-on-year increase of 10.94%, and an average daily order volume of 206,000 orders. It is expected that the tripartite home delivery business will contribute a major increase in online revenue. As of August 2023, the company has launched a total of 940 e-commerce warehouses, including 135 basic warehouses (covering 15 cities), 131 high-standard semi-warehouses (covering 33 cities), 652 integrated warehouses (covering 181 cities), and 22 satellite warehouses. The logistics supply chain is being built in an orderly manner, driving the expansion of the scale of online business.
Investment advice: Considering that the company is currently in a period of business transformation and upgrading, the performance of the online business and its own brand is relatively impressive. Compared with the increase in the number of stores, more attention is paid to internal digital transformation and improvement of operating efficiency. If business optimization progresses smoothly and can be reflected in the optimization of the single-store model, the company is expected to restart replication and expansion, leading to an increase in performance and valuation. Net profit for 2023-2025 is expected to be 0.7, 1.19, and 348 million yuan. The corresponding PS valuations are 0.35X, 0.31X, and 0.29X respectively, maintaining the “buy” rating.
Risk warning
1. Residents' willingness to spend continues to be weak;
2. The company's business upgrade and optimization progress has been slower than expected.