The company released its 2023 annual report, and the results were in line with expectations. In 2023, the company achieved revenue of 67.540 billion yuan/yoy +24.08%, net profit of 6.714 billion yuan/yoy +33.46%, net profit of 6.652 billion yuan/yoy +35.71%; 23Q4 achieved revenue of 16.703 billion yuan/yoy +10.85%, net profit of 1,507 billion yuan/yoy +274.72%, net profit of non-return mother of 1,461 million yuan/yoy +358.90%; overall performance is in line with expectations.
Profitability improved year-on-year for the whole year, and the reduction in Q4 sales rates under rent relief led to a month-on-month improvement in net interest rate to mother. In 2023, the company's gross margin was 31.82% /yoy+3.43pcts, and the net profit margin to mother was 9.94% /yoy+0.7pcts. 24Q4's gross margin was 32.04% /month-on-month - 2.42pcts. We think it may be related to the reduction in Q4 promotional discounts. The net profit margin was 15.07% /month-on-month +1.66pcts, mainly brought about by the optimization of sales expenses and financial expense ratios. The 24Q4 company's sales expense rate/management expense rate/R&D expense rate/ finance rate were 14.85%/4%/0.29%/-1.72%, each with a month-on-month ratio of -2.95pcts/+0.23pcts/-0.22pcts. We think it may be related to the new rent agreement signed by the company in December 2023. The agreement came into effect in December 2023, so rent reduction has already begun to show in 23Q4.
The Haikou Duty Free Mall has driven revenue growth in the Hainan region. The increase in online revenue is significantly affected by rents, and profits have declined. 1) By region, in 2023, Hainan's revenue was 39.65 billion yuan/yoy +14.25%, gross profit margin 25.76% /yoy+0.33pcts; Shanghai revenue was 17.821 billion yuan/yoy +25.99%, gross profit margin 23.80% /yoy+0.86pcts. 2) Looking at branches, free international revenue in 23 years was 46.053 billion yuan, net profit to mother was 1,997 billion yuan; revenue from duty-free shops in Sanya was 28.364 billion yuan/yoy -6.22%, net profit was 2,647 billion yuan/yoy +3.59%; Haikou Duty Free achieved revenue of 6.838 billion yuan and net profit of 32.9943 million yuan in the first year of operation; Haifen's revenue was 4.918 billion yuan/yoy -12.77%, net profit to mother of 198 million yuan/yoy -42.78%; daily revenue from Shanghai 17.821 billion yuan/yoy +25.99%, net profit to mother 257 million yuan/yoy -59.11%, mainly affected by rent increases.
The dividend rate has been significantly increased to give back to shareholders, and inventory has been optimized. In 2023, the company plans to pay a cash dividend of 1.65 yuan per share, totaling 3.414 billion yuan in cash dividends. The cash dividend ratio is 50.85%, which is a significant increase from 32.9% in 2022. In terms of inventory, the company's inventory at the end of 2023 was 21,057 billion yuan, down 1.8 billion yuan month-on-month and 6.869 billion yuan year-on-year, and inventory was optimized.
Investment advice: The new rent agreement is expected to reduce the company's airport rent costs, and the restoration of inbound and outbound passenger flow is expected to drive port duty-free revenue. Under the increase in revenue and fee reduction, we believe that the company's port duty-free business will contribute to business flexibility in the future; the city's tax exemption policy is expected to be introduced at an accelerated pace, contributing to potential increases. Furthermore, the actual controller of the company is the State Council's State-owned Assets Administration Commission, which belongs to a state-owned enterprise. Looking at the company's future market capitalization performance in the long run, it is expected that the company's future market value performance will be linked to the assessment of the head of the enterprise, and operating efficiency is expected to improve. We expect the company's net profit to be 78.72, 95.40, and 11.121 billion yuan respectively for 24-26. The PE corresponding to the closing price on March 28 is 23x/19x/16x, respectively, maintaining the “recommended” rating.
Risk warning: passenger flow recovery falls short of expectations, insufficient consumer confidence, etc.