Event: Macalline releases its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved operating income of 11.515 billion yuan, a year-on-year decrease of 18.55%; net profit to mother was -216 billion yuan, a year-on-year decrease of 496.78%; net profit after deduction was 1.28 billion yuan, a year-on-year decrease of 306.46%. Among them, in the 2023Q4 quarter, the company achieved operating income of 2,840 billion yuan, a year-on-year decrease of 22.28%; net profit to mother - 1,770 billion yuan, a year-on-year decrease of 210.53%; net profit after deduction - 876 million yuan, a year-on-year decrease of 73.81%. 24Q1 achieved operating income of 2.112 billion yuan, a year-on-year decrease of 19.30%; net profit to mother was 372 million yuan, a year-on-year decrease of 322.16%, and net profit after deducting net income of 119 million yuan, a year-on-year decrease of 155.11%.
Fluctuating industry demand, the impact of preferential merchant policies, 23 and 24Q1 revenue pressure. By the end of 2023, the company operated 87 self-operated shopping malls, 275 managed shopping malls, 8 strategic cooperative shopping malls, and 46 franchised home building materials projects, including a total of 448 home building materials stores/industrial streets. By business, 1) In terms of self-operated business, the company's leasing and related revenue in 2023 was 6.781 billion yuan, down 13.8% from the previous year. The number of self-operated shopping malls decreased by 7, and the average occupancy rate of self-operated shopping malls reached 82.8%, mainly affected by fluctuations in the overall economic environment. The shopping mall occupancy rate declined in stages, and the company's discounts to stabilize businesses and stay in business increased. 2) In terms of management business, the company's management business revenue in 2022 was 2,031 billion yuan, a year-on-year decrease of 14.5%, mainly due to a decrease in early project brand consulting contract management, annual brand consulting management service revenue, and commercial consulting fees and investment commission project revenue. In '23, the number of company-managed shopping malls was reduced by 9, and the average occupancy rate was 85.7%. By the end of 2023, among the shopping malls prepared by the company, 292 signed projects had obtained land use warrants/land plots, and sufficient reserve projects.
Extend categories, expand the integration of home improvement and home furnishings, further optimize the shareholder structure, continue to expand the company's categories, expand integrated consumption in multiple business formats, further build the top ten theme halls, actively introduce core catering brands and new energy vehicles, create integrated consumption in multiple business formats, and optimize the business structure. In July 2023, the company reached a strategic cooperation with Shanghai Carnage Auto Service Co., Ltd. and other parties to combine the automobile category with the household category to test the waters of new “one-stop home buying” businesses from home improvement to home appliances, automobiles, etc., and improve the customer service experience. At the same time, the company is further expanding the integration of home improvement and home furnishings. In March 2023, the company officially launched the M+ High-end Design Center, which further bundles shopping malls, designers, dealers and brand factory meetings, comprehensively enhances the customer acquisition and business capabilities of shopping malls, brands and dealers, and builds a sustainable high-quality high-end traffic ecosystem. Furthermore, the company pioneered the implementation of a new retail model for home consumption. The company digitally upgraded shopping malls across the country, established an online “Tmall Tongcheng Station”, built its own new retail online product operation and service capabilities, and built an omni-channel user operation system.
The company introduced new shareholders C&D Shares and MediaTek Group in June 2023 to gradually develop a more diverse corporate culture, which will help further optimize the corporate governance structure and improve management efficiency.
The gross margin was stable overall. The net profit level was pressured by large impairment measures. The company's comprehensive gross margin in 2023 was 56.74%, -1.62pct year on year. Among them, the gross margin of sales of self-operated shopping malls/managed shopping malls/construction and design/home improvement related services and products was 70.8%/-0.6%/-3.3%, respectively, -2.1/+3.16/ -15.9/-27.2pct. 23Q4's consolidated gross margin was 52.74%, -0.41pct year over year. 24Q1's consolidated gross margin was 60.51%, +0.71pct year-on-year.
In terms of period expenses, the cost rate for the 2023 period was 46.60%, +8.86pct year on year, and the sales/management/R&D/finance expenses ratio was 12.88%/11.31%/0.17%/22.24%, respectively, +1.88/+1.33/ -0.16/+5.81pct, respectively. Among them, the cost rate for the 23Q4 period was 45.79%, +4.4pct year on year, and the sales/management/ development/ finance ratio was 12.76%/8.8%/0.21%/24.03%, respectively, and -1.31/-3.09/-0.12/+8.92pct, respectively. The cost rate for the 24Q1 period was 51.66%, +10.35pct year on year, and the sales/management/R&D/ finance ratio was 9.55%/11.41%/0.04%/6.45%, respectively, -0.28/+0.25/-0.02/+10.39pct, respectively.
Under the combined influence, the company's net interest rate in '23 was -20.59%, down 25.31pct year on year; 23Q4 net interest rate was -61.58%, down 43.62 pct year on year; 24Q1 net interest rate was -16.93%, down 24.00pct year on year. The company's net interest rate in '23 and 24Q1 was under pressure, mainly due to 1) in 2023, the company depreciated a lot of accounts receivable and contract assets, including businesses related to managed stores; 2) The fair value of investment properties declined in response to the phased decline in shopping mall occupancy rates by increasing stable trade and retention concessions. The 24Q1 company lost 324 million yuan due to changes in fair value, an increase of 314 million yuan over the previous year. Of these, losses totaled 330 million yuan due to fluctuations in the fair value of investment real estate, an increase of 306 million yuan over the previous year.
Investment advice: The company continues to steadily advance the “asset-light, operation-heavy, and leverage-reduction” strategy. The controlling shareholder C&D Group's business is in synergy with the company, which is expected to be reorganized and revitalized, and profitability is expected to gradually recover. We expect Macalline's revenue for 2024-2026 to be 110.55, 111.27, and 11,255 billion yuan, up -3.99%, 0.65%, and 1.15% year on year; net profit to mother will be 2.62, 3.78, and 436 million yuan, and net profit to mother will increase by 44.37% and 15.42% year on year in 25-26, corresponding PE of 54.2x, 37.5x, 32.5x, and give it an investment rating of 3.55 yuan.
Risk warning: New retail development falls short of expected risks; risk of cyclical fluctuations in the real estate industry; store expansion falls short of expected risks.