Key points of investment:

Maintain an increase in holdings. 2023 revenue of 12.09 billion yuan/ -0.32%, net profit to mother of 227 million yuan/ +88.8%, deducted not 128 million yuan/ +168%. The adjusted EBITDA was 875 million yuan/ -14.4% lower than previously anticipated due to slight weakness in supermarket business. The forecast for EPS in 2024-25 was lowered to 0.21/0.24 yuan (originally 0.31/0.37 yuan) growth rate of 9/ 12%, and the new forecast for 2026 EPS was 0.26 yuan, 11%. Referring to the valuation of comparable companies in the same industry, the target price was lowered to 6.93 yuan to maintain the increase in holdings.

Profitability and operating cash flow have improved, buying 100 is better, and supermarkets are under pressure. 1) 2023 gross profit margin of 38.3% /+1.45pct, net profit margin of 1.88% /+0.89pct, weighted average ROE was 5.51% /+2.54pct; 2) period expense ratio 37.04%/-0.74pct; 3) net operating cash flow 2.75 billion yuan/ +14.3%; 4) shopping center/department store same-store revenue growth was +14.3%/+5.25%, with total profit growth of +225%/+10.1% respectively; supermarket figures were -4/ -20.3% respectively.

The business format has been transformed and upgraded, and more measures have been taken to reduce costs and increase efficiency. 1) In 2023, there was a net increase of 1 shopping center and a net decrease of 3 department stores and 3 supermarkets. As of the end of 2023, 41 shopping malls, 59 department stores, and 116 supermarkets; 9 reserve projects have been signed to open; 2) Focus on building 11 key stores, continue to promote the transformation of department stores into community living centers, and explore store innovation and optimization.

Actively promote the upgrading of digital industrialization, it is proposed to carry out the application and issuance of public REITs. 1) Set up a marketing center to coordinate national marketing, and multiple marketing nodes performed brilliantly; 2) GMV of 5.44 billion yuan in online product sales and digital service revenue; 3) Deepen technological innovation and membership operations, maintain rapid growth, and sign new partnerships with leading benchmark companies; 4) Rapidly develop ToB business, increasing annual sales by 5%; 5) It is proposed to declare a shopping center in Suzhou for public REITs.

Risk warning: online business, store upgrades, digital capacity building falls short of expectations, etc.