Core views
2024Q1 achieved operating income of 18.807 billion yuan, -9.45% year-on-year, total profit of 2,910 billion yuan, -7.8%, and net profit to mother of 2,306 billion yuan, +0.25%, which is basically in line with the express report. By the end of the first quarter, the company's inventory had dropped sharply by 33% year on year to 17.593 billion yuan. The number of inventory turnover days was 139 days, down 26 days year on year, and inventory levels improved significantly. The overall gross margin of the 24Q1 company was 33.31%, a significant increase of 4.31pct year-on-year, and 23q4+1.27pct month-on-month. The company strictly controls and implements the price system and the company-wide inventory strategy, and gross margin has increased steadily since the beginning of last year. The new seaport in Hainan appeared to have a basic break-even balance last year. After the opening of Building C in Haitang Bay, the boutique building A will continue to be upgraded and built this year, while part of the airport port business is gradually being restored. The company will further focus on gross margin and total profit this year, and it is expected that profitability will remain steady.
occurrences
The company announced its results for the first quarter of 2024:2024Q1 expects to achieve operating income of 18.807 billion yuan, -9.45% year on year, net profit of 2,306 billion yuan, +0.25% year-on-year, after deducting non-net profit of 2,299 billion yuan, +0.15% year-on-year, which is basically in line with the previous report.
Brief review
Gross margin continued to recover, inventory further improved
The company's overall gross margin for the first quarter of 2024 was 33.31%, up 4.31 percentage points year on year, and 1.27pct higher than 23Q4. The company strictly controls and implements the price system and the company-wide inventory strategy. As the market position is gradually stabilized, it will not use price wars to divert money. At the same time, the purchasing side and brands lock exchange rates in advance to prevent the risk of exchange rate fluctuations. The gross margin has been rising steadily since the beginning of last year. The company will focus on gross margin and profit levels this year. As of 2024Q1, the company's inventory was 17.593 billion yuan, a sharp decrease of 32.69% year on year, down 16.45% from last year's Q4, and the number of inventory turnover days was 139 days, down 26 days year on year. Inventory levels improved significantly. 2024Q1's net operating cash flow was 5.302 billion yuan. As of the end of the quarter, the company had monetary capital of 36.387 billion yuan. The 2023 annual report increased the dividend ratio. Subsequent self-owned capital can fully cover project construction, and the cash flow level is healthy.
The effective tax rate is expected to drop significantly, and all ports will gradually resume profits
2024Q1's sales expense ratio was 12.84%, up 2.98 percentage points year on year; management expense ratio was 2.53%, up 0.38 percentage points year on year; financial expense ratio was -0.66%, up 0.83 percentage points year on year. The company's total profit for the first quarter was 2,910 billion yuan, -7.8%, and the actual effective income tax rate was 16.3% (21.9% in Q1 last year, relatively high). At the same time, the company's minority shareholders' profit fell 22.1% to 129 million yuan this quarter, which is expected to be related to the company's clean-up of minority shareholders at some ports. The combined effect enabled the company's deducted non-net profit margin to reach 12.22%, the highest in a single quarter since 2022/Q3.
Investment advice: Maintaining the profit forecast, we expect to achieve net profit of 8.081 billion yuan, 9.292 billion yuan, and 10.265 billion yuan in 2024-2026. Current stock prices correspond to PE of 18X, 16X, and 14X, respectively, maintaining the “increase” rating.
Risk analysis
1. Related properties and supply chain construction fall short of expectations: Since the company's operations require investment and construction, if the construction of related properties and supply chains falls short of expectations and the passenger flow cultivation effect falls short of expectations, there are performance risks; 2. Changes in competition in the Hainan market: Many of the company's projects are related to the development of the Hainan Free Trade Port, and the business environment in Hainan has improved rapidly. If there are major changes in the competitive landscape of the Hainan market, it may pose risks to the company's operations.
3. Overall consumption environment: If overall spending power is insufficient, it is difficult to increase the outlying islands duty-free penetration rate and customer unit price, and there is limited room for long-term consumption return, which may affect long-term income and performance.