Description of the event
The company released its financial report for the first quarter of 2024. During the period, it achieved revenue of 18.808 billion yuan/ -9.45%, net profit to mother of 2,306 billion yuan/ +0.25%, net profit after deducting non-return to mother of 2,299 billion yuan/ +0.15%, and non-recurring profit and loss mainly due to government subsidies of 8.5946 million yuan and EPS of 1.11 yuan.
Incident reviews
The decline in the company's revenue during the period was mainly due to the relaxation of travel regulations in the same period last year. High enthusiasm for travel consumption led to a high base of duty-free sales on the outlying islands. 2024Q1's revenue declined slightly, and net profit due to the same period last year was basically the same as the same period last year. The main reason is that the company began cracking down on proxy purchasing practices in April 2023, updating membership point rules, adjusting discount levels, improving product structure, and gradually increasing customer unit prices and profit margins. The company's inventory during the period was 1,759 billion yuan, down 16.45% month-on-month, and inventory improved significantly.
2024Q1's profitability continues to increase. The company's gross profit margin during the period was 33.31% /+4.31pct, up 1.27pct from 2023Q4, mainly due to 1) the recovery of inbound and outbound passenger flow led to an increase in the company's share of offline consumption; 2) optimization of the product structure and an increase in the proportion of perfumery products with high gross margin; 3) procurement costs increased during the same period last year due to fluctuations in the RMB exchange rate, which put pressure on gross margin. Exchange rate fluctuations were well controlled and profitability improved year-on-year. The net profit margin was 12.95% /+1.08pct, up 1.91pct from 2023Q4. The overall expense ratio was 14.71% /+4.19pct. Among them, the sales expense ratio was 12.84% /+2.98pct, the airport business gradually resumed, and rent expenses increased over the same period of the previous year; the management expense ratio was 2.53% /+0.38pct; and the financial expense ratio -0.66% /+0.83pct was high on exchange gains and losses for the same period last year.
Net cash flow from operating activities was 5.302 billion yuan/ -28.59%.
Investment advice
The actual number of international and regional passenger flights carried out during the Qingming holiday increased by 125% year-on-year, and has recovered to nearly 70% in the same period in 2019. Inbound and outbound customers are recovering in an orderly manner, and there is room for improvement in airport rents, port channel profitability, and price competitiveness. Continue to be optimistic that the company, as a leading travel retail leader, will benefit from the recovery in inbound and outbound passenger flow and the city's duty-free shop policy to maintain a high industry growth rate in the consumer circuit. We expect the company's 2024-2026 EPS to be 3.94\ 4.71\ 5.8 yuan respectively, corresponding to the company's closing price of 72.29 yuan on April 24, and PE 18.4\ 12.5 times for 2024-2026, respectively, to maintain the “buy-B” rating.
Risk warning
Risk of macroeconomic fluctuations; risk of changes in tax exemption policies on the outlying islands; risk of consumer purchasing power falling short of expectations; risk of exchange rate fluctuations; risk of increased industry competition.