The company released its three-quarter report for 2023 on October 28. The third quarter of 2023 achieved revenue of 20.061 billion yuan, a year-on-year decrease of 9.54%; net profit to mother was 321 million yuan, a year-on-year decrease of 453 million yuan, after deducting non-net profit of 474 million yuan, a year-on-year loss of 262 million yuan. Diluted EPS -0.03 yuan, weighted average return on net assets -4.31%.
Brief review and investment advice.
1. In the third quarter of 2023, revenue fell 9.54%, and comprehensive gross margin increased by 1.85pct. Revenue for the first three quarters was 62,088 billion yuan, down 12.44% year on year, of which 3Q23 revenue was 20.061 billion yuan, down 9.54% year on year.
The main reasons for the decline in revenue: ① the economy gradually recovered and the competitive environment was severe; ② the company took the initiative to optimize stores and eliminate some loss-making stores, and the number of stores declined year-on-year. The consolidated gross margin for the first three quarters increased 1.69 pct year on year to 21.63%, the gross margin of the main business increased 1.74 pct year on year to 16.29%; the comprehensive gross margin for 3Q23 increased 1.85 pct year on year to 20.88% year on year. By region, revenue in Southeast China, North China, East China, West China, Southwest China, South China, and Central China each decreased by 9.11%, 14.41%, 11.07%, 17.4%, 9.94%, 13.85%, and 12.96% year-on-year in the first three quarters.
In the third quarter, the company signed 6 new supermarket stores and added 1 new store. The company also announced the closure of 4 Bravo stores in the third quarter, which is estimated to result in a total loss of 7.94 million yuan.
2. The cost rate increased by 0.41 pct during the third quarter of 2023. The cost rate for the first three quarters was 22.25%, up 1.29 pct year on year; the cost rate for the 3Q23 period was 23.58%, up 0.41 pct year on year. Among them, the 3Q sales expense ratio was 19.13%, up 0.70 pct year on year; the management expense ratio was 2.40%, the same year on year; the financial expense ratio was 1.70%, a decrease of 0.08 pct year on year; and the R&D expense ratio was 0.35%, a decrease of 0.21 pct year on year.
3. Net profit attributable to mother decreased by 453 million yuan year-on-year in the third quarter. The sharp loss reduction was mainly due to higher gross margin and higher fair value of financial assets. The company's net profit attributable to mother was 52 million yuan and net profit deducted from non-mother was 375 million yuan, with year-on-year losses of 939 million yuan and 267 million yuan, respectively. Mainly due to a gradual recovery in gross margin, the initial results of digital transformation, and overall operating efficiency improved; the fair value of financial assets held continued to rise. In 3Q23, profit and loss from changes in fair value were 4.77 million yuan, investment income of 94.95 million yuan; total profit of 378 million yuan decreased the year-on-year loss by 549 million yuan, and the effective tax rate decreased by 0.41 pct to 9.51% year on year. Net profit attributable to mother in 3Q23 was 321 million yuan, net profit not attributable to mother was 474 million yuan, with year-on-year losses of 453 million yuan and 262 million yuan, respectively.
4. Online sales accounted for 19.75% in the first three quarters. The company's online sales in the first three quarters were 12.26 billion yuan, up 5.69% year on year, accounting for 19.75%; “Yonghui Life”'s self-operated home delivery business covered 930 stores, achieving sales of 6.38 billion yuan, with an average daily order volume of 311,000 orders and an average monthly repurchase rate of 49.8%; the third-party platform home delivery business covered 908 million stores, with sales of 5.88 billion yuan, up 10.94% year on year, with an average daily order volume of 206,000 orders.
Maintain judgment on the company. We believe that the company's gross margin has improved significantly since 2022, and it is recommended to follow up on same-store trends and profit recovery elasticity under cost reduction and efficiency. ① Store optimization: The company started an era of store iteration by selecting+selecting high-quality store properties and eliminating and closing some end-of-line stores; ② Strengthening the fresh food supply chain: vertical management of the fresh food sector, using a long and short radius mechanism to build its own platform “Fuping Supply Chain” for fresh food, increasing the penetration rate of direct source procurement; strengthening collaboration with brands. ③ Build a digital center: Complete the full launch of the YHDOS system in 2022 to improve the efficiency of the entire digital operation process.
Update profit forecasts. Net profit due to mother in 2023-2025 is expected to be 98 million yuan, 392 million yuan, and 811 million yuan respectively, up 103.6%, 299.4%, and 106.9% year-on-year; the current market value corresponds to 2024-2025 PE 71 times and 34 times, respectively, and 0.33 times and 0.31 times PS, respectively. Considering that the company's net interest rate is still in the early stages of recovery, we maintain the PS valuation method and give it 0.4-0.5 times PS in 2024, corresponding to a reasonable market value range of 33.9 billion yuan to 42.4 billion yuan, and a reasonable value range of 3.74-4.68 yuan, maintaining an investment rating of “superior to the market”.
Risk warning. Uncertainty about online business, increased industry competition, and uncertainty about investment returns and impairment losses.