Incident: The company announced results for the first quarter of 2024, achieving revenue of 2.67 billion yuan, an increase of 4.55%, net profit to mother of 163 million yuan, an increase of 15.95%, net profit of 151 million yuan after deducting net profit of not attributable to mother, an increase of 9.86%.

Comment:

The main retail business grew steadily under a high base. 24Q1 revenue reached a record high in a single quarter. After excluding investment income from joint ventures, the company's main business profit increased 8.26% year on year. The company continues to promote the upgrading of old stores and improve the efficiency of single store operations. In 2023, 144 new stores were opened, which is faster than in 2022, and completed the upgrading of 279 old stores. By the end of 2023, there were 3,639 stores. The average revenue of a single store in 2023 was about 2.81 million yuan, an increase of 0.6% over the previous year.

New Internet Banking performed brilliantly. The company directly held 15% of Xinwang Bank's shares and achieved investment income of 38 million yuan in 24Q1, an increase of 51.09% over the same period.

In terms of profitability, 24Q1 net sales margin was 6.12%, up 0.6 PCT year on year, mainly due to increased contribution to the investment income of joint ventures; gross profit margin 29.80%, a slight decrease of 0.23PCT year on year; sales/management/ financial expense ratios were 22.17%/1.24%/0.97%, respectively, -0.26/-0.03/+0.3 PCT year on year.

Sichuan state-owned assets plan to take over the company's business, which is expected to strengthen resource integration and collaborative development. On December 20, 2023, Cao Shiru, the company's actual controller, and Cao Zengjun, and his co-operator, signed a share transfer agreement with Sichuan Commercial Investment (the actual controller is the Sichuan Provincial State-owned Assets Administration Commission) to transfer their holdings of 94 million shares (Cao Shiru 82 million shares, Cao Zengjun's 12 million shares) and their corresponding shareholders' rights and interests to commercial investment. The total transferred shares accounted for 6.91% of the company's total share capital. The transfer price was 5.88 yuan/share, and promised to relinquish voting rights for the remaining 20.7% of the shares held by 2027.1.1. Meanwhile, Yonghui Supermarket plans to transfer 136 million shares of the company's holdings to commercial investment, accounting for 10% of the company's total share capital. After the above transfer, Cao Shiru and Cao Zengjun held a total of 20.72% of the shares, Yonghui Supermarket held 11% of the shares, and the commercial investment investment held 16.91%; after the voting rights waiver agreement came into effect, the total number of voting shares of the company was 1,078 billion shares, the voting ratio of the company controlled by commercial investment was 21.32%. The company's controlling shareholder changed to commercial investment, and the actual controller of the company was changed to the Sichuan Provincial Government's State-owned Assets Supervision and Administration Committee. As of 2024.3.20, commercial investment has obtained the “Decision not to Prohibit Centralized Anti-Monopoly Examination by Operators” from the State Administration of Market Supervision and Administration. The above equity transfer matters will be implemented after obtaining approval documents approved by the competent state-owned assets department.

According to the “Performance Commitment Agreement” signed between Commercial Investment and Cao Shiru and Cao Zengjun, the company deducts net profit not returned to mother in 2024-2026, minus investment income, which is not less than 230 million yuan each year. Cao Shiru continued to serve as the chairman and general manager of the listed company during the performance commitment period and 6 months after the expiration of the performance commitment period, and was responsible for the daily operation of the listed company.

Profit forecast: We expect the company's 2024-2026 revenue to be 104.96/108.35/11.170 billion yuan, respectively, up 3.6%/3.2%/3.1%; net profit to mother will be 6.29/6.74/711 billion yuan, up 12.2%/7.1%/5.4%, EPS 0.46/0.50/0.52 yuan, respectively, corresponding to the closing price of April 11, PE will be 11/11/10X.

Risk factors: Stock transfers fell short of expectations, the progress of the renovation and upgrading of new stores and old stores fell short of expectations, regional competition intensified due to the expansion of low-cost businesses such as discount stores, and the profits of joint ventures fell short of expectations.