2023 results fall short of our expectations
The company announced its 2023 results: achieved revenue of 7.178 billion yuan, an increase of 13.3%, net profit of 209 million yuan, a decrease of 30.7% after adjustment, after deduction of non-net profit of 83 million yuan, and a decrease of 70.5% after adjustment, lower than our expectations, mainly due to high cost pressure such as the newly launched self-operated project Wushang Dream Era and depreciation related to Nanchang Wushang Mall. At the same time, the company plans to pay a cash dividend of 0.5 yuan for every 10 shares, with a dividend ratio of about 18%.
Development trends
1. Driven by new projects, revenue increased 13.3% in 2023. 1) By business, under a comparable scale in 2023: shopping center revenue was 3.20 billion yuan, up 9.2% year on year, mainly due to the gradual recovery of shopping mall passenger flow after the epidemic, and the contribution of key projects increased. Supermarket revenue was 2.5 billion yuan, down 5.2% year on year, and industry competition continued to intensify. In addition, the real estate business had revenue of 80 million yuan, mainly the remaining housing projects of Times Garden; 2) Online channels were under pressure, and the subsidiary e-commerce company GMV achieved 296 million yuan in 2023, with revenue of 16.17 million yuan, a year-on-year decrease of -23.3%; 3) In terms of exhibition stores, the number of shopping malls/supermarkets at the end of 2023 was 11/71, a net increase of 1/2 compared to the end of 2022.
2. In 2023, the deducted non-net interest rate decreased by 3.3 ppt, mainly affected by the cost of the new project. In 2023, the company's gross margin increased by 2.3 ppt to 47.0%. Among them, the gross margin of the main retail business increased by 1.4 ppt. We think it is mainly related to the discount rate. In terms of the cost ratio for the period, the sales expense ratio also increased by 4.0ppt to 33.7%. We think the main reason was the increase in depreciation expenses for newly started projects; the management+R&D expenses ratio decreased by 0.7 ppt to 2.8%, and the financial expenses ratio also increased by 2.5 ppt to 4.5%, and the main reason was the increase in interest expenses. Under the combined impact, the net interest rate/net interest rate after deducting non-net interest rate decreased by 1.9/3.3ppt to 2.9%/1.2%, putting pressure on profitability.
3. The main business continues to explore and keep an eye on the progress of newly opened properties climbing. In 2024, the company plans to accelerate the upgrading of Wushang Mall, Wushang Mall · World Trade, Wushang Dream Era, and Wushang City Olay to promote the implementation of projects such as new energy vehicles. The regional market will continue to deepen the “shopping center” transformation and maintain its leading edge.
In terms of new properties, the opening rate of the Nanchang Wushang MALL brand exceeds 90%. The Wushang Dream Era indoor high-rise power park “WS Dream Park” was launched, further enriching the layout of the experiential business format, and the operation of newly opened properties continued to climb.
Profit forecasting and valuation
Considering the high cost pressure of Dream Era and Wushang Mall, the 2024 profit forecast was lowered by 24% to 366 million yuan, and a profit forecast of 425 million yuan for 2025 was introduced. The current stock price corresponds to 16/13 times P/E for 2024/25. Maintaining a neutral rating, the target price was lowered by 20% to 8 yuan based on profit forecast adjustments, corresponding to 17/14 times P/E in 2024/25, with 8% room for improvement compared to the current stock price.
risks
New projects fell short of expectations, and market competition intensified.