Incident: On April 26, 2024, Wangfujing released its 2024 quarterly report. 2024Q1 achieved revenue of 3.308 billion yuan, -1.7% year over year; net profit to mother of 202 million yuan, -10.9% year on year; net profit after deducting non-return to mother of 193 million yuan, -13.7% year on year.
The performance was in line with expectations. Due to the market environment, Q1 revenue declined year over year. Q1 gross margin was 41.2%, -1.6 pct year on year. The new project cultivation period was compounded by long-term lease high-rent projects under the new lease guidelines, putting pressure on gross margin; the three sales, management and finance rates were 29.1%, -0.5 pct year on year; net profit margin to mother was 6.1%, -0.6 pct year on year.
The Wanning duty-free program continues to climb, and the growth rate of various business formats is diverging. By business type, 2024Q1 department store/shopping center/olay/supermarket/specialty store/duty-free achieved revenue of 14.4/6.7/5.9/0.8/3.8/120 million yuan respectively, with year-on-year growth rates of -11%/3.5%/9.5%/-5%/117%, respectively. The Q1 gross margin was 35%/45%/65%/17%/18%, respectively. The growth rate of various business formats is divided. Overall, the domestic retail environment in Q1 was relatively weak, and the growth rate of the duty-free business was impressive as it climbed. Because the relevant revenue recognition was changed from the total amount method to the net amount method based on operating contracts signed with individual suppliers, the income and gross margin of the tax-free business changed compared to the previous period.
It is proposed to repurchase shares of 1-2 billion yuan, with a dividend ratio of 32%. The company plans to use its own capital to repurchase common shares already issued by the company at a price not higher than 17.50 yuan/share (inclusive) to reduce the company's registered capital and repurchase the share amount of 100 to 200 million yuan. The company plans to distribute a cash dividend of 227 million yuan (tax included), with a cash dividend ratio of 32%.
Profit forecast and investment rating: Wangfujing is an established and benchmark department store retail group with a national chain. After receiving full duty-free licenses, the Wanning Outlying Islands duty-free project “Wangfujing Duty Free Port” was put into operation to create a characteristic duty-free business. Against the backdrop of a rapid recovery in travel and consumption, duty-free shopping on the outlying islands is expected to continue to expand. In the future, duty-free shops in the city will expand imagination, and the company's revenue and profit prospects will improve. Maintaining Wangfujing's profit forecast, net profit due to mother for 2024-2026 was RMB 8.54/10.04/11.53 billion, respectively, corresponding to PE valuation of 18/15/13 times, maintaining the “increase” rating.
Risk warning: risk of macroeconomic fluctuations, risk of duty-free project performance falling short of expectations, risk of increased market competition