Introduction to this report:

The company's taxable business relies on the growth of Ole and shopping malls, and the duty-free business continues to climb.

Key points of investment:

Investment advice: The performance is in line with expectations, maintaining the company's 2024-2026 EPS at 0.74 yuan, 0.87 yuan, and 0.93 yuan, respectively. Refer to comparable companies and give the 2024 industry average of 25xPE, maintain a target price of 18.41 yuan, and maintain an increase in holdings rating.

Performance summary: 2024Q1 revenue of 3.308 billion yuan/YoY -1.74%, net profit to mother of 210 million yuan/-10.86%, net profit after deducting non-return to mother of 193 million yuan/YoY -13.72%, net cash flow from operating activities 554 million yuan/YoY -56.28%, net interest rate to mother 6.1% /YoY -0.6 pct.

New business formats and new store climbs affect costs and expense rates. 2024Q1 gross profit margin 41.2% /YoY -1.6 pct/month-on-month -2.8 pct, sales expense ratio 13.3%/YoY +0.1 pct/month-on-month -6.4 pct, management expense ratio 15.2%/YoY +1.2pct/month-on-month +2.6 pct. Since the company's new business format and new stores are still being nurtured, the revenue increase is not enough to cover relatively fixed costs and expenses. In addition, high-rent projects with long leases are greatly affected by the new leasing guidelines in the early stages of leasing, which has had a certain impact on the company's profits.

Ole's business is growing better, and the duty-free business continues to climb. 2024Q1 department store/shopping center/outlet/supermarket/specialty store/duty-free revenue was -11.25%/+3.52%/+9.45%/-4.98%/+116.78%, respectively, and gross margins were -1.81pct/-4.15pct/-5.29pct/+1.66pct/+0.2pct/+3.37pct, respectively. Because it carries more service experience content, cost-effective content, and the advantages of meeting diverse needs in one stop and meeting new lifestyle consumption in the new era, Olai and the shopping center business has shown strong operational resilience. The recovery is clearly better than the department store business format, and has played an important role in stabilizing the company's overall efficiency platform, and has now become an important part of the company's efficiency growth. The duty-free business format accelerates project construction adjustments.

Risk warning: The implementation of policies fell short of expectations, and consumer demand was weak.