The company released its 2024 quarterly report: 2024Q1 achieved revenue of 5.485 billion yuan (YoY +12.4%), net profit attributable to mother of 380 million yuan (+13.9% YoY), and net profit of 328 million yuan (YoY +11.1%) after deducting non-return net profit of RMB328 million (YoY +11.1%). Revenue and profit are growing steadily, and the “two wings in one” strategy is progressing steadily. Traditional core products continue to adjust the structure and expand categories to strengthen the delivery rate of classic bestsellers, and Q1 revenue steadily accelerates; Jiumu Sundries continues to expand rapidly, and the single-store model is running at an accelerated pace, and the performance is impressive.

Traditional core Q1 performed well, and profitability rose steadily. According to our estimates, 2024Q1's traditional core business (total revenue - living center - Colipu) achieved revenue of about 2.2 billion yuan (+12% year over year), and profitability remained stable. By category, 2024Q1 writing tools/ student stationery/ traditional office achieved revenue of 5.65/854.00 billion yuan (YoY +15.7%/+17.1%/+6.4%), with gross margins of 43.8%/34.7%/27.5% (+3.3pct/+1.0pct/-0.7pct), respectively. At the product level, focusing on the promotion of classic best-selling products, restructuring and category expansion to drive the continuous growth of traditional business; at the channel level, focusing on key offline terminals, focusing on improving the quality of single stores, while e-commerce channels continue to gain strength and refine the operation of multiple stores+flagship stores, 2024Q1 Chenguang Technology achieved revenue of 247 million yuan (+32.7% year over year).

Improvements can be expected in Colipu, and Jiumu continues to be beautiful. 1) Colipu: 2024Q1 achieved revenue of 2,947 billion yuan (+11.6% year over year), gross margin was 7.2% (basically the same year on year). Affected by the general environment, the Q1 growth rate slowed month-on-month. The company is actively thinking about changes and developing new customers, and is expected to contribute to growth in the second half of the year. Along with the improvement of the national warehousing layout and platform management capabilities, profits are expected to continue to be stable. 2) Major retail stores: 2024Q1 Chenguang Living Center (including Jiumu Sundries Club) achieved revenue of 371 million yuan (+23.5% year over year), of which Jiumu Sundries Club achieved revenue of 348 million yuan (+25.1% year over year). We determine continued profit. As of the end of 2024Q1, the company had 678 major retail stores (+19 compared to the beginning of the year), including 639 Jiumu Grocery Store (+21 compared to the beginning of the year) and 39 Chenguang Living Center (2 compared to the beginning of the year). The exploration of the Jiumu model was initially successful, and the financial model continued to be optimized. The revenue of the 2024Q1 single store was about 60.96 million yuan (+6.8% YoY, +3.9%), helping Chenguang's brand & products to be upgraded smoothly.

Gross margin has been rising steadily, and the results of cost control are gradually showing. The gross margin of the 2024Q1 company was 20.2% (+0.5pct year on year), and the results of the company's cost control were gradually reflected. The 2024Q1 sales/management/ R&D expenses ratio was 7.4%/3.9%/0.9% (+0.4 pct/basically flat/-0.1 pct), and the net profit margin to mother was 6.9% (+0.1 pct year over year, +1.2 pct month on month). Looking forward to the future, with the gradual upgrading of the company's product & channel structure, profitability is expected to remain steady.

Cash flow & operating performance are stable. The company generated a net operating cash flow of 68 million yuan (year-on-year -67 million yuan) in 2024Q1, which we expect to be mainly affected by the difference in payment times in the supply chain. In terms of operating capacity, as of the end of 2024Q1, the company's accounts receivable turnover days was 59 days (+4 days year over year), 90 days payable turnover days (+5 days year over year), and inventory turnover days was 31 days (-4 days year over year), and operating capacity remained stable.

Profit forecast: The market share of the company's traditional business is steadily increasing, and Keli's popular retail stores continue to be high. We expect net profit due to mother for 2024-2026 to be 1.80 billion yuan, 2.12 billion yuan, and 2.49 billion yuan, respectively. Corresponding PE is 17.6X, 15.0X, and 12.7X, maintaining a “buy” rating.

Risk warning: The recovery of offline traffic falls short of expectations, the launch of new products falls short of expectations, and the expansion of Colipu's customers falls short of expectations.