Incident: On April 19, the company released its 2023 annual report, achieving operating income of 12.224 billion yuan/year on year, achieving net profit of 709 million yuan/year on year +264.14%, net profit of 636 million yuan (loss of 10 million yuan for the same period of the previous year); single Q4 achieved operating income of 2,959 million yuan/year on year +26.80%, net profit due to mother 61 million yuan (loss of 220 million yuan for the same period last year), net profit of 46 million yuan (loss of 251 million yuan for the same period last year) ); At the same time, it was announced that it intends to acquire some of the shares and bonds of Beijing Huanhui Real Estate Co., Ltd. held by First Travel Group. On April 26, the company announced its 2024Q1 results, achieving operating income of 3.308 billion yuan/-1.74%, net profit attributable to mother of 202 million yuan/-10.86% YoY, and net profit excluding non-return to mother of 193 million yuan/-13.72% YoY.

Business scenarios have been optimized, Ole and shopping malls are driving performance growth, and the duty-free business is still climbing. Consumption recovered moderately in 2023, and the company continued to expand. At the same time, due to store policies, the company continued to focus on business adjustments. Among them: 1) The department store business was transformed, and Olay continued to focus on the development of the “big brand, small price” business philosophy. The shopping center business continued to lead the stylish and high-quality shopping environment, and supermarkets and specialty stores operated steadily, and were also involved in the duty-free business. During the reporting period, Wangfujing International Duty Free Port, Wangfujing Haiken Shopping Center, Wangfujing Olai Uptown, and Jinjie Joy Shopping Mall projects were opened one after another; 2) By the end of the period, the company had 31/17/29/10 department stores/shopping centers/supermarket stores, which were -5/+1/+6/-4, respectively. The specialty store business had a total of 32 Rui Jinshangpin businesses; 3) Faya Trading had 334 homes/year-on-year +24 stores; 3) The company achieved separate specialty stores throughout the year revenue 56.1/25.8/20.3/3.7/1.51 billion yuan, +6.2%/+35.1%/-18.5%/+16.4%, respectively. The duty-free business achieved revenue of 190 million yuan, excluding store changes, and the same store increased 11.19% year-on-year; 4) The duty-free business achieved operating revenue of 190 million yuan, and the first phase of duty-free introduced more than 400 international first-tier brands, and the tax zone has more than 300 well-known international and domestic brands. The second and third phases are being actively prepared; since duty-free companies signed with individual suppliers The operating contract changed the relevant revenue recognition from the total amount method to the net amount method. Tax-free business revenue and gross margin changed compared to the previous period; overall, the project is still climbing.

Continue to strengthen cooperation with key brands while building an integrated online and offline business model. During the reporting period, the company continued to strengthen cooperation with key brands. The main business stores adjusted a total of 6041 brands throughout the year, with a comprehensive adjustment rate of 38%, 2,601 new brands and 441 first stores, accounting for 17% of new resources; actively built the “Wangfujing Online Platform”, and more than 60 stores have achieved online and offline dual operations, covering mainstream channels such as Zang, Douyin, and Xiaohongshu. The group's passenger flow increased 43.9% year-on-year throughout the year, and the online marketing effect was strengthened: 925 Beautiful Life Festival, the group's customer flow rate was +38% compared to the same period of online marketing. Diversion compared to the same store A significant increase of 73.6%, accounting for 70% of total online sales, an increase of 10pct over the same period. In 2023, the company achieved online sales of 1.44 billion yuan/year over year +60%.

The gross margin increased year over year, and the cost ratio was also optimized. 1) On the gross profit side, the company's comprehensive gross margin was +3.55pct to 41.84% year over year. By business type, the gross margin of the department store/ shopping center/ outlet/ supermarket/ specialty store business was 36.44%/49.39%/68.72%/13.96%/14.99%, +4.83/+1.23/+5.49/ -0.89/+0.71 pct, respectively. 2) On the expense side, the period expense ratio was -2.94 pct to 29.68%, of which sales expense rate/management expense rate/financial expense ratio were 15.16%/12.14%/2.38%, -0.59/-2.31/-0.04 pct, respectively.

2024Q1 operations are relatively steady. 1) There was no change in the number of the company's large-scale comprehensive retail stores during the period. As of March 2024, the company had 31/17/29/1 department stores/Olley/Shopping Center/Duty Free stores, for a total of 78 stores. The 2024Q1 department store/shopping center/outlet/supermarket/specialty store/duty-free business achieved operating income of 14.5/6.7/5.9/0.8/3.8/120 million yuan, respectively -11.25%/+3.52%/+9.45%/-31.06%/-4.98%/+116.78%; 2) In terms of duty-free business, the operating revenue of the outlying island duty-free shop Wangfujing International Duty Free Port increased 81% year on year during the reporting period, and passenger flow increased 33% year on year; 3) gross margin 24Q1 YoY- 1.6 pct to 41.2%, mainly due to new business formats, new stores are still in the cultivation period, and the revenue increase is not enough to cover relatively fixed costs and expenses; 4) On the cost side, the sales/management/ finance expenses ratio was +0.07/+1.21/-1.76pct to 13.34%/15.21%/0.51% compared to the same period, and the cost was optimized.

Investment advice: The company is a benchmark for the domestic retail department store industry, and has rich industry accumulation and industrial resources. After being granted a duty-free license in 2020, it actively promoted the establishment of a tax business system. Wanning Wangfujing Outlying Island Duty Free Port officially opened in January 2023. Considering the company's 2023&2024Q1 performance, we adjusted the 2024-2026 operating income to 128.57/134.67/14.129 billion yuan, and net profit to mother to 752/8.12/927 million yuan. The corresponding valuation of the current stock price is 21X/19X/17X, respectively, maintaining the “buy” rating.

Risk warning: Consumption growth seriously falls short of expectations; industry competition has seriously intensified; macroeconomic policy risks.