The company released its 2023 annual report

23Q4: The company's revenue was 2,840 billion yuan, a decrease of 22.3%; net profit due to mother was 1,656 million yuan, a decrease of 118.1%; deducted from non-return mother - 893 million yuan, a decrease of 77.0%.

Revenue for the full year of '23 was 11.515 billion yuan, a decrease of 18.6%; net profit to mother was 22.16 billion yuan, a decrease of 496.8%; deducted from non-return to mother - 1,228 billion yuan, a decrease of 306.5%.

The economic environment fluctuated in 23 years, and shopping mall occupancy rates declined in stages. In order to support the continuous operation of merchants, the company's revenue and profits declined in order to increase stable business and business promotion.

The main business of the store was adjusted in stages, and profitability declined

In '23, the company's self-operated and leased revenue was 6.781 billion yuan, down 13.8%, with a gross profit margin of 70.80%, -2.1 pct; managed shopping mall revenue of 2,031 billion yuan, down 14.5%; gross profit margin of 43.80%, +3.1 pct; construction and design revenue of 1,212 million yuan, a decrease of -1.7%; and sales revenue of home improvement related services and products of 313 million yuan, a decrease of -51.2% year on year.

The company's gross profit margin for 23 years was 56.74%, a decrease of 1.42pct; the net profit margin to mother was -19.2%, a decrease of 23.15pct. In order to cope with industry pressure, the company further controlled operating costs, and profitability was under pressure.

Consolidate market leadership and focus on empowering new retail

The company has matured to cover the national omni-channel commercial network and build a high-quality high-end traffic ecosystem. By the end of 23, the company operated 87/275/8 self-operated/strategic cooperative shopping malls and franchised 46 home building materials projects, including a total of 448 home building materials stores/industrial streets; the total operating area was 122 million square meters, and the average occupancy rate of own/managed shopping malls was 82.8%/85.7%. The company further built the top ten theme pavilions. The electrical/home improvement design area increased by 4.5/110,000 square meters, accounting for 10.8%/3.3%, the new popular brand/Class A + import area accounted for 11.1%/49.6%, and launched the M+ high-end design center to build a “10+1" three-dimensional home ecosystem with full links to brand and designer resources. At the same time, we will promote online and offline integration, operate omni-channel traffic, and digitally upgrade 295 core shopping malls.

Looking ahead to 2024:1) Adhere to the “asset-light, operation-heavy” transformation to further consolidate the market leadership position. Upgrade consumer reputation and increase merchant stickiness by improving operational efficiency, optimizing network layout, and deepening theme hall operation and digital marketing;

2) Deeply explore the home improvement circuit and establish consumer mentality. Strengthen the integration of all categories of operations and supply chains, transform to a platform, and strengthen the brand image of “Red Star Macalline when choosing decoration and buying a home”; 3) Promoting the development of new retail and empowering shopping mall operations. Strengthen the digital operation of shopping malls, expand new online retail channels, support brands and dealers to improve their online capabilities, and use digital tools to accurately channel and increase conversion rates through online and offline integration strategies.

Shareholder structure optimization, business collaboration ushered in new opportunities for development

In June 2023, the company introduced new shareholders C&D Co., Ltd. and MediaTek Group, and the shareholder structure was optimized to improve operating efficiency. The company and C&D Co., Ltd. have strong synergy in the supply chain and real estate business. Mutual empowerment and mutual achievements between the two sides are gradually being implemented, and the company is ushering in new opportunities for development.

Adjust profit forecasts to maintain “buy” ratings

The company's main business has been adjusted in stages, and new shareholders are expected to bring new opportunities for development. Considering the company's 23-year performance and current business environment, the 24-25 profit forecast was lowered. As the majority shareholders' business synergy effects appear and the company's home improvement channels are developed, subsequent profits are expected to gradually improve. We expect the company's net profit to mother for 24-26 to be 0.01/2010/407 million yuan respectively (24-25 years ago values were 1,27/1.49 billion yuan, respectively), and the corresponding PE for 25-26 is 70/36X, respectively.

Risk warning: the risk of macroeconomic and industry fluctuations, the risk of expanding business development, the risk that offline traffic will not recover as much as expected, etc.