Core views

The company's performance in 2023 was stable. The taxable business achieved a good profit recovery, and the duty-free business was still in a state of loss due to the development stage. The company announced a repurchase plan during the year and superimposed a dividend plan to enhance shareholders' feedback and confidence. 24Q1 business performance is still affected by the opening and cultivation of some new stores. The company actively adjusts categories, adjusts business awareness, and upgrades marketing to strengthen the first-store business format. The duty-free business is expected to enhance brand richness, supply chain collaboration and experience after the implementation and cultivation of Phase II and Phase III, and is expected to become a new growth curve.

occurrences

The company released its 2023 annual report and 2024 quarterly report. In 2023, we achieved operating income of 12.224 billion yuan, and realized net profit of 709 million yuan, +264.14% year on year; in the first quarter of 2024, we achieved operating income of 3.308 billion yuan, -1.74% year on year, and realized net profit of 202 million yuan, or -10.86% year on year.

Brief review

The taxable business was well repaired, new stores were gradually cultivated, and the repurchase of shares enhanced confidence. In 23Q4, the company achieved operating income of 2,959 billion yuan, +26.8% year-on-year, and realized net profit of 61.47 million yuan to mother, while 22Q4 was -220 million yuan, reversing losses. The company's overall gross profit margin in 2023 was 66.35%, +16.21pct year-on-year. The cost rate for the period was 12.02%, -76.57pct year on year. The overall performance gradually returned to normal in 2023. Net cash flow from operating activities in 2023 was 3.64 billion yuan, +119.64% year over year; by business type, outlet performance continued to be impressive throughout the year, with revenue of 2,034 billion yuan in 2023, +35.09% year-on-year. The revenue of specialty stores was +16.35% year-on-year, and the performance was also good. Department stores and shopping centers maintained single-digit percentage revenue growth. On the gross margin side, all business formats have basically improved. The duty-free business had annual revenue of 187 million yuan, with a gross profit margin of 19.19%. Duty free companies changed relevant revenue recognition from the total amount method to the net amount method based on business contracts signed with individual suppliers, so their annual revenue and gross margin changed compared to the previous period. The balance of projects under construction at the end of 2023 was 301 million yuan, +36.7% compared to the beginning of the period. It was mainly affected by the renovation projects of affiliated subsidiaries. Judging from the performance of subsidiaries, the losses of several tax-free business-related subsidiaries in 2023 had an impact on the annual results. The net profit of Hainan Outlets Tourism Development Co., Ltd., the main entity in Hainan Duty Free - 138 million yuan. The net profit of Beijing Wangfujing Duty Free Management Co., Ltd. was 46.776 million yuan. The net profit of Beijing Wangfujing Duty Free Digital Retail Co., Ltd. was 22.974 million yuan. In addition, Haiken Plaza, which opened in late October 2023, corresponds to a net profit of 56.2631 million yuan. It can be seen that the performance of other taxable projects recovered quite well in 2023. As of the end of 2023, the company had 78 large stores, and the construction area continued to improve. New business formats such as Wangfujing Ole Uptown, Golden Street Joy Shopping Center, Wangfujing International Duty Free Port, and Haiken Plaza have been opened and gradually cultivated.

24Q1 revenue declined slightly compared to the same period. At the same time, due to the company's new business format and new stores still in the cultivation period, long leases and high-rent projects were greatly affected by the new leasing guidelines in the early stages of leasing, which had a certain impact on the company's profits. The gross profit margin was 41.22%, -1.58pct year over year. The cost rate for the period was 29.06%, -0.48pct year-on-year. Based on firm confidence in the company's future development prospects, the company plans to repurchase the company's shares through centralized bidding transactions. The current share repurchase amount is 100 to 200 million yuan, which will help enhance shareholders' confidence. For profit distribution in 2023, the company plans to distribute a cash dividend of 2 yuan for every 10 shares, for a total of 227 million yuan in cash dividends, with a cash dividend ratio of 32.00%.

Looking forward to the development of new business formats and the gradual cultivation of duty-free businesses

In 2023, the company will continue to promote actions such as the landing of new properties, the cultivation and development of Ole and other business formats, brand adjustments, marketing upgrades, and the cultivation of duty-free businesses. The main business stores adjusted a total of 6041 brands throughout the year, with a comprehensive adjustment rate of 38%, including 2601 new brands and 441 first-time stores. First-run stores accounted for 17% of new resources. In 2023, the distribution of online business marketing to the same store increased sharply by 73.6% year-on-year, accounting for 70% of total online sales, an increase of 10 percentage points over the same period. The company already has more than 60 stores operating both online and offline, covering mainstream channels such as Zing, Douyin, and Xiaohongshu. Department stores actively adjusted and successfully built two product lines and unified design and logo systems; in terms of duty-free business, Wanning Wangfujing International Duty Free Port was successfully opened, cross-border e-commerce was launched and experience stores were launched. At the same time, Wangfujing Haiken Shopping Center was unveiled at the end of the year, and the tax+duty-free two-wheel drive business pattern was initially formed; 24Q1 planned and linked cross-border cooperation to launch marketing activities with the famous Guoman-themed IP “My Dad is a Dragon”, and launched a number of themed marketing activities such as the New Year shopping season series at 78 stores in 36 cities across the country. In terms of the duty-free business, the company's outlying islands duty-free shop, Wangfujing International Duty Free Port, all recorded sales and passenger traffic in the first quarter. Revenue increased 81% year over year, and passenger flow increased 33% year over year during the reporting period. Preparations for the second and third duty-free phases are in progress. After implementation, it is expected that the brand richness, supply chain scale, experience richness and collaboration will increase further. The company's adjustments to the retail operation logic, the upgrading of various business formats, and the promotion of a tax-free + taxable pattern are all expected to gradually improve.

Investment advice: From 2024 to 2026, the company is expected to achieve net profit of 825 million yuan, 944 million yuan, and 1,085 million yuan. The current stock prices correspond to PE of 19X, 16X, and 14X, respectively, maintaining a “buy” rating.