Incident: The company released its annual report. In 2023, it achieved operating income of 11.515 billion yuan, -18.55%; realized net profit to mother of -216 billion yuan, -496.78% year-on-year, and realized net profit deducted from non-mother of 1,228 billion yuan, or 306.46% year-on-year. The company achieved revenue of 2,840 billion yuan in Q4, or -22.3% year-on-year, and realized net profit attributable to mother of 1,656 million yuan, or -118.05% year-on-year, after deducting non-return net profit of 893 million yuan, or -77.01% year-on-year.
Comment:
Industry climate adjustments and merchant support policies affect the company's revenue, and the integration of multiple business formats and home improvement and home furnishing continue to advance. The company achieved revenue of 11.515 billion yuan in 2023, -18.55% year on year; single Q4 achieved revenue of 2,840 billion yuan, -22.3% year-on-year. By sector, self-operated/leased shopping malls, construction and design, and home improvement-related services and product sales achieved revenue of 6.781 billion yuan, 2,031 billion yuan, 1,212 million yuan, and 313 million yuan respectively in 2023, which was -13.8%, -14.3%, -1.7%, and -51.2%, respectively. Among them, the year-on-year decline in revenue from own/leased shopping malls and managed shopping malls was mainly affected by fluctuations in the overall economic environment in 2023. Shopping mall occupancy rates declined in stages. In order to support the continued operation of merchants, the company increased offers to stabilize business and retain business, and at the same time, the number of shopping malls also decreased. Number of shopping malls and occupancy rates. By the end of 2023, the company operated 87 self-operated shopping malls, a net decrease of 7 from the end of '22; 275 managed shopping malls, a net decrease of 9 compared to the end of '22; operated 8 home furnishing shopping malls and 46 franchised home building materials projects through strategic cooperation, including a total of 488 home building materials stores/industrial streets. In terms of occupancy rate, the average occupancy rate of self-operated shopping malls was 82.8%, -2.4 pct year on year; the average occupancy rate of managed shopping malls was 85.7%, -1 pct year on year. Integration of multiple business formats: The company continues to expand categories and expand integrated consumption in multiple business formats. Among them, the annual area of electrical appliances increased by 45,000 square meters, accounting for 10.8%, the home decoration design area increased by 110,000 square meters, accounting for 3.3%, the share of new popular brands reached 11.1%, the share of Class A + imported area stabilized at 49.6%, and the coverage rate of food and beverage shopping malls nationwide increased from 43% to 54%, while targeting the big car ecosystem. Home improvement and home integration: In March 2023, the company released the M+ High-end Design Center. In the future, shopping malls, designers, dealers, and brand factories will be further deeply bundled, with design plans as the center, to increase traffic conversion rates, reduce customer acquisition costs, and build a sustainable high-quality high-end traffic ecosystem.
Loss of fair value of investment real estate and asset impairment dragged down profits, and capital expenditure declined. 1) In terms of gross margin, the company achieved a gross profit margin of 56.7% in 2023, -1.4pct year on year. By product, the gross sales margins of the company's own/leased shopping malls, construction and design, and home improvement related services and products in 2023 were 70.8%, 43.8%, -0.6%, and -3.3%, respectively, compared with -2.1pct, +3.3pct, -15.9pct, and -27.2pct, respectively. 2) In terms of period expenses, the company's sales, management, R&D, and financial expenses rates in 2023 were 12.9%, 11.3%, 0.2%, and 22.2%, respectively, with year-on-year changes of +1.9pct, +1.3pct, -0.2pct, and +5.8pct. 3) In terms of net profit, the company achieved net profit attributable to mother of 22.16 billion yuan in 2023, -496.78% year-on-year, and realized net profit without deduction of 1,228 billion yuan, or 306.46% year-on-year. In 2023, the company calculated an impairment provision of $1,934 million for various types of assets, an impairment reserve of RMB 169 million for the transfer and write-off of various types of assets, and a loss of RMB 842 million from changes in the fair value of investment real estate. 4) In terms of operations, the company achieved operating cash flow of 2.4 billion yuan in 2023, compared to -39.1%, mainly due to fluctuations in the overall economic environment, phased decline in shopping mall rental rates, and increased business stabilization and retention incentives; cash flow from investment activities was 700 million yuan, +2% year over year, mainly for the company to control capital expenses; cash flow from financing activities - 3.2 billion yuan, compared to -8.1 billion yuan last year, mainly due to a decrease in net cash outflow from obtaining and repaying debts compared to the previous year.
Profit forecast and rating: As a leading domestic home decoration and furniture store operator and pan-home business platform service provider, the company has strong brand potential and leading position. In recent years, the company has relied on the strategy of “expanding categories and refocusing operations” to build ten major theme pavilions, including high-end appliances, system doors and windows, to achieve a “10+1" three-dimensional household ecosystem with full coverage of home, home improvement, and high-end appliances, and full links to brand and designer resources. We expect the company's net profit to be 382 million yuan, 407 million yuan, and 432 million yuan respectively in 2024-2026, +117.2%, +6.5%, and +6.1% year-on-year, respectively, maintaining the “increase in holdings” rating.
Risk factors: market competition risk, real estate cycle fluctuation risk.