Description of the event

The company disclosed the 2023 annual report and the 2024 quarterly report: 2023 revenue was 17.76 billion yuan, down 2.3% year on year, and net profit to mother was 136 million yuan, up 127.0% year on year. 2024Q1's revenue was 5.19 billion yuan, up 5.7% year on year, and net profit to mother was 147 million yuan, up 7.1% year on year.

Incident comments

In 2023, same-store sales were under pressure, but the main business continued to be optimized and adjusted. At the end of 2023, the total number of company stores was 1,049, a net increase of 44 over the previous year. Among them, comprehensive supermarkets, community fresh supermarkets, and direct sales stores in rural supermarkets had net changes of +2, -8, and -5 respectively; Yueji snack stores reached 56, and Haohuixing discount stores reached 7. Overall, the main stores in traditional supermarkets were optimized and adjusted, and the new business format was beginning to take shape. In 2023, the company's revenue fell slightly by 2.3% year on year to 17.76 billion yuan, or mainly due to the 2.17% year-on-year decline in revenue of the same store (direct-run stores that have been in business for more than two years); the comprehensive gross margin for the whole year rose 0.6 pct year on year to 23.9% year on year, and gross profit increased by 1.03 million yuan year on year. Sales expenses were reduced by 43.97 million yuan year-on-year due to optimization of manual remuneration and rent costs. Overall, annual operating profit (gross profit - operating tax - sales/management/financial expenses) reached 197 million yuan, an increase of 93.49 million yuan, a year-on-year increase of 90%; of these, Q1-4 achieved 188 million yuan, 60.16 million yuan, 44.52 million yuan, and -95.32 million yuan, respectively. 2023Q4 closed 18 direct-run stores, and revenue fell 8.0% due to frequent store closures.

In terms of dividends, the company's dividend payment rate reached 88% in 2023, which is significantly higher than the 60% + level in 2021 and before.

Overall, weak stores have been cleared and stock stores have improved quality and efficiency, and the company's operating quality has remained relatively stable, maintaining a high percentage of dividends on this basis.

2024Q1 achieved healthy growth as a whole, and the layout of new business formats accelerated. 2024Q1 revenue increased 5.7% year-on-year, mainly due to positive growth in comparable store sales and new stores. By the end of the first quarter, the company had a total of 1,065 stores, including 67 snack stores and 8 discount stores. The net increase in stores was still mainly due to new business formats. 2024Q1 gross margin decreased by 0.62 pct to 24.04% year on year, gross profit increased by 37.24 million yuan year on year, while sales expenses increased by 38.67 million yuan year on year. Overall, operating profit for the first quarter reached 186 million yuan, a slight decrease of 0.9% year on year.

Strengthen logistics systems and commercial power, and continuously improve supply chain capabilities. In 2023, the company continued to strengthen logistics distribution capabilities. The logistics “scheduled delivery” project was launched, and the on-time delivery rate of delivery vehicles reached more than 80%; online and offline collaboration increased by 23.9% year-on-year, and supermarket online sales accounted for 5.98%; in addition, it made full use of fresh logistics processing bases to improve R&D, customization, processing, production and marketing service capabilities for self-branded products such as cooked food, etc., with its own brands and customized products accounting for 13.5% in 2023. Based on the “strong integration, stable two wings” development strategy, the company's dominant position in the Shandong market continues to grow. By eliminating weak stores, slowing down supermarket expansion, and putting the new business layout into a period of acceleration, which may fuel the company's long-term growth, we expect the company's EPS to reach 0.38, 0.48, and 0.58 yuan in 2024-2026, and PE valuations are 27.2, 21.4, and 17.9 times, respectively, maintaining the “buy” rating.

Risk warning

1. CPI continues to be low to suppress supermarket customer unit prices;

2. The layout of the new business format is progressing less than expected.