The company is expected to achieve net profit of RMB 20 million to RMB 250 million in 2023. The company issued a pre-increase announcement for the 2023 annual results: In 2023, the company expects to achieve net profit of RMB 20 million to RMB 250 million, an increase of 66.54% to 108.17% over the previous year. In 2023, the company expects to achieve net profit of 110 million yuan to 140 million yuan after deducting non-return to mother. In the same period of 2022, the company lost 188.46 million yuan, turning a loss into a profit. The company expects to achieve basic earnings of $0.17 to $0.21 per share in 2023.

On a quarterly basis, we estimate that the 4Q2023 company achieved net profit of 24.64 million yuan to 25.36 million yuan, compared to 5.46 million yuan for the same period in 2022. We estimate that in 4Q2023, the company achieved net profit without deduction of 11.04 million yuan to 18.96 million yuan, and a loss of 10.35 million yuan for the same period in 2022.

The company continues to iteratively upgrade stores and close stores to improve profit

In 2023, on the one hand, the company continued to iteratively upgrade stores, polish the high-quality supply chain, grasp major marketing nodes, coordinate national marketing, and explore public domain platforms. In 2023, the company's store traffic and platform traffic increased year-on-year, and sales increased year-on-year. On the other hand, the company further improves the company's profit situation by optimizing costs and expenses, closing long-term loss-making stores, improving industrial digitalization and intelligent application capabilities.

In 2023, the company's net profit due to the closure of long-term loss-making stores confirmed the disposal of right-to-use assets and closing losses, etc., which together had an increase of about 100 million yuan in net profit returned to mother in 2023. The sale of shares in Tianhong Weiwow Convenience Store by the company in 2022 affected the net profit to the mother increased by about 179 million yuan in 2022, while rent relief for merchants affected the net profit to the mother decreased by about 98 million yuan in 2022. Excluding the above effects, the company's net profit to mother increased by about 60 million yuan to 110 million yuan year-on-year in 2023.

Lower profit forecast and maintain “buy” rating

The company's performance fell short of our previous expectations. On the one hand, it was due to the relative pressure on the company's supermarket business. On the other hand, the company's main stores were mainly located in Shenzhen, but with changes in the Shenzhen industrial structure, the results of the company's store adjustments fell short of expectations, leading to relative pressure on some of the main stores. The company continues to iteratively upgrade stores, but there is still some uncertainty about the effects of store upgrades and adjustments in the short term. We lowered our 2023/2024/2025 EPS forecast by 31%/30%/30% to 0.19/0.21/0.23 yuan. The company still has a certain competitive position in Shenzhen, and is actively adjusting stores and optimizing the cost structure. In the long run, it still has certain development prospects and maintains a “buy” rating.

Risk warning: Some store leases cannot be renewed when they expire, and the pace of new business formats and new store expansion falls short of expectations.