Incident: Wangfujing releases its 2023 annual report. Operating revenue for the year was 12.224 billion yuan, up 13.19% year on year. Excluding store changes, the same store increased 11.19% year on year; net profit attributable to shareholders of listed companies was 709 million yuan, an increase of 264.14% year on year.

Taxable business: Actively transform and adjust to seize market recovery opportunities. In 2023, department stores/shopping centers/outlets/supermarkets/specialty stores achieved revenue of 56.1/25.8/20.3/3.8/15.1 billion yuan, compared to +1.3%/+19.1%/+37.6%/-18.5%/+16.4%, gross profit margin 36.4%/49.4%/68.7%/14.0%/15.0%, +4.7/+0.3/-0.9/+0.7 pcts year over year. During the reporting period, the company had 31 department stores, 17 Olay stores, 29 shopping malls, 10 joint venture supermarkets and 366 specialty stores (32 Ruijin Premium and 334 Faya Trading). Wangfujing Ole Uptown and Jinjie Joy Shopping Mall projects opened successively at the end of 2023, and are expected to release results in 2024.

Duty-free business: The first duty-free store was launched, and online cross-border e-commerce platform channels were opened simultaneously. In 2023, Wanning Wangfujing International Duty Free Port was successfully opened. At the same time, the cross-border e-commerce platform completed the launch of various modes such as cross-border self-operation, cross-border consignment, taxable occupancy, and taxable consignment sales. The cross-border e-commerce industry chain has already been initially established. With the implementation of duty-free business sector projects one by one, the company's “tax+duty-free” two-wheel drive business pattern was initially formed. In 2023, the company's tax-free business achieved revenue of 190 million yuan, with a gross profit margin of 19.2%, accounting for 1.53% of total revenue.

Investment advice: The company has both tax and tax exemption business, and the duty-free business is expected to benefit from the advantages of membership and brands accumulated over a long period of time in the taxable business. We expect the company's 2024-2026 revenue to be 142/161/17.7 billion yuan, up 16.2%/13.0%/10.5% year on year, and achieve net profit to mother of 9.8/13.2/16.1 billion yuan, up 37.9%/34.5%/22.6% year on year, maintaining the “increase” rating.

Risk warning: offline passenger flow recovery is slow; consumption growth falls short of expectations; duty-free business progress falls short of expectations; other risks