The results for the first quarter of 2024 are in line with our expectations
The company announced 1Q24 results: achieved revenue of 4.85 billion yuan, a decrease of 4.6% for the comparable caliber, a net profit of 430 million yuan, a decrease of 15.1% for the comparable caliber, 450 million yuan for non-return net profit, and a 2.7% decrease for the comparable caliber, which is in line with our expectations. The reason for the traceability adjustment was the absorption of the merger trading company group. Non-recurring profit and loss were mainly profit and loss from changes in the fair value of Dengkang Dental shares held.
Development trends
1. 1Q24 revenue fell slightly by 4.6% in comparable terms. By business type, 1Q24's department store/supermarket/electrical/auto trade revenue was -5.3%/-6.9%/+4.7%/-5.8% year-on-year. We believe that the decline in department stores was mainly due to warm winters, where residents traveled more, consumed less locally, and sales of some winter products were affected; supermarkets were affected by online diversion, etc.; the integration of the electrical supply chain progressed, and competitive advantages expanded. In terms of stores, the company's 1Q24 supermarket/electric/auto trade stores all added one and closed one. It withdrew from operation in Hubei during this period. As of the end of March, there were 50/152/41/38 department stores/supermarket/electrical/auto trade stores each.
2. Cost reduction and efficiency continue to advance, and the profitability of the main business is improving. On a comparable scale: The company's 1Q24 gross margin decreased by 1.4ppt to 28.2% year on year, and the gross margin of the supermarket business was under heavy pressure. We believe that the main reason was the increase in competition; the cost ratio for the period fell 0.9ppt to 17.9%, of which sales and R&D expenses remained flat, the management expenses rate decreased by 0.5ppt to 4.2%, and the financial expenses ratio decreased by 0.4ppt to 0.3%. The total absolute value of 1Q24 sales and management expenses decreased by about 86 million yuan year on year. In addition, 1Q24 investment income also fell 7.5% to 170 million yuan, mainly due to Malaysia's high investment income base last year. Malaysia continued to innovate financial services to meet consumer demand, and the provision ratio for non-performing assets was also steady. We believe it is still growing well this year. Under the combined influence, the company's 1Q24 net interest rate/deducted non-net interest rate was -1.1/+0.2ppt to 9.0%/9.2% year over year, respectively. We calculated that net profit without deducting Ma was basically flat year over year, net interest rate increased, and the profitability of the main retail business improved.
3. Business transformation and innovation continue to advance, optimistic about the company's operating vitality. The company has now completed absorption and restructuring. The governance mechanism is flatter and more streamlined, and the market-based mechanism has been further improved along with the performance reward plan. The business format continues to innovate in 2023: department stores launch a number of consumer-themed exhibitions to attract and increase sales; supermarkets strengthen Wumei Group's industrial collaboration to give full play to the sales advantages of TOP brands; electrical appliances expand e-commerce omnichannel sales and transform themed stores; and auto trade and used car platforms cooperate to expand business growth. We are optimistic about the trend of improving the company's operating vitality and capacity.
Profit forecasting and valuation
Maintaining the 2024/25 profit forecast of $144/150 million, the current stock price corresponds to 8.4/8.0 times PE in 2024/25. Maintaining an industry rating and target price of 40 yuan, corresponding to 12.5/11.9 times PE in 2024/25, with 48% room for growth.
risks
Competition in the industry intensified, and the results of the company's mixed reform fell short of expectations.