Key points of investment
The company achieved operating income of 4.850 billion yuan in 2024Q1, -4.63% year-on-year, and realized net profit attributable to parent company owners of 435 million yuan, -15.07% year-on-year, and -8.02% year-on-year. Net profit after deducting non-return to mother was $446 million, -2.74% YoY.
In Q1, the company achieved investment income of 166 million yuan, -8% year-on-year, and net profit of the main business after deducting investment income of 280 million yuan, +0% year-on-year. After removing asset impairment losses, the company achieved a profit of 387 million yuan from its main business, -7% over the same period last year.
Among the four major business formats, the electrical appliance industry performed well. Department stores, supermarkets, electrical appliances, and auto trade each achieved revenue of 7.71/19.86/7.90/1,250 billion yuan, or -5%/-6% compared to the same period. Department stores, supermarkets, electrical appliances, and auto trade were 50, 152, 41 or 38, respectively. The number of stores did not change, and 1 supermarket/automobile trade/electrical appliance each had opening/closing 1.
The company's gross margin in 2024Q1 was 28.20%, +1.07pct year-on-year. Among them, the gross margin of supermarkets and appliances was significantly optimized, improving quality and efficiency on the supply chain side. The gross profit margin of department stores, supermarkets, electrical appliances, and auto trade in 2024Q1 was 73%/28%/19%/6%, -0.88pct/+3.77pct/+0.57pct/ -1.30pct year-on-year. Management efficiency has improved, with sales/management/R&D/finance expenses accounting for 13.21%/4.23%/0.10%/0.33% respectively, +0.10pct/-0.54pct/-0.05pct/-0.35pct compared to the same period.
At the company's annual work meeting, we continue to emphasize:
1) Focus on improving product management capabilities, with extreme product competitiveness as the core, keeping up with changes in consumer trends, promoting the introduction of new and old, supply chain optimization and business model changes; deepening strategic cooperation to promote joint business plans; expanding underwriting, customization, and own brands to continuously improve the cost performance, attractiveness and differentiation of products.
2) Focus on creating new scenarios (spaces), continue to deepen the six major stores, provide more new scenarios that meet consumer needs and lifestyles, and enhance the appeal of stores.
3) Focus on improving efficiency, speeding up digital intelligence empowerment, integration and collaboration, stimulating internal vitality, promoting flatter organizational hierarchies, simplified management and efficient operation, strengthening value creation and an assessment system based on “one value creation table for everyone”, encouraging co-creation, sharing and stimulating vitality within the team.
Profit forecast: The company is a leading regional company with commercial growth. The main business format has been upgraded and supply chain capacity has been strengthened, reforms have released efficiency, licensed fintech companies have contributed to growth, and focus more on technology empowerment rather than traditional interest rate swaps. It is expected that Davis will double hit in a lower valuation context. It is estimated that 2024/2025/2026 will achieve net profit of 1,429/15.82/1,772 billion yuan, respectively, corresponding to PE 8X/7X/7X, maintaining the “buy” rating.
Risk warning: 1. The decline in consumption power exceeds expectations; 2. Store traffic falls short of expectations;