Incidents:
Commodity City issued the “Notice Concerning the Proposed Transfer of Shares and Related Transactions by Wholly-owned Subsidiaries”, which plans to transfer 100% of the shares of “Xing Chen Enterprise Management” held by the wholly-owned subsidiary “Big Data Company” to the controlling shareholder Mall Holdings. The transaction consideration is 0 yuan. “Xing Chen Enterprise Management” holds 95% of the shares in “Haicheng Company”. This transaction can divest Haicheng Company from the listed company and increase the company's profitability.
Commodity City released the 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved revenue of 11.3 billion yuan, a year-on-year increase of 48.3%, and achieved net profit of 2,676 billion yuan to mother, an increase of 142.25% over the previous year.
2024Q1 achieved revenue of 2,681 billion yuan, an increase of 26.42% over the previous year, and achieved net profit of 713 million yuan, a year-on-year decrease of 41.66%. It was mainly due to a sharp decrease in current investment income and asset disposal contributions, and the main business performance was still quite impressive.
Investment highlights:
On the revenue side, by business, the company's market operations achieved revenue of 3,074 billion yuan in 2023, an increase of 81.16% over the previous year. On the one hand, the company added operating carry-over revenue from the East Zone 2 New Energy Products Market in 2023, and on the other hand, the impact of the company's rent reduction policy in the same period in 2022.
In 2023, the company's trade services achieved revenue of 602 million yuan, an increase of 43.37%, mainly due to the rapid increase in revenue from information services such as the company's CG platform in 2023; supporting services achieved revenue of 467 million yuan, an increase of 79.30% year on year, mainly due to increased hotel occupancy rates and expansion of exhibition business; and product sales business achieved revenue of 6.792 billion yuan, an increase of 37.22% year on year.
Expense & profit side, 1) The company's sales/management/R&D/finance expense ratios in 2023 were 2.12%/4.96%/1.11%/0.19%, respectively, with year-on-year changes of -0.47/-1.99/-0.85/-0.03pct.
2) In terms of profit, the company's gross margin in 2023 was 26.50%, up 11.18% year on year. By business, the gross margin of market operation was 71.83%, up 28.52pct year on year. The main reason was that in 2023, the company confirmed 1-2 F seat selection fee revenue in the Eastern District, which raised the overall gross profit level. At the same time, passenger flow picked up in 2023. The gross margin of trade services was 69.74%, up 22.48% year on year. Thanks to the accelerated monetization of the CG platform in 2023, the payment business achieved profit during the year; The hotel occupancy rate increased, and the scale of the exhibition business expanded, and supporting services achieved a gross profit margin of 23.58%, an increase of 6.88% over the previous year; the gross margin of product sales remained steady in 2023, with a year-on-year increase of 0.22% to 0.50%. The company's net interest rate in 2023 was 30.89%, up 6.15% year over year. 3) 2024Q1's net profit to mother was 713 million yuan, a year-on-year decrease of 41.66%. Of these, investment income decreased by 730 million yuan year-on-year, and asset disposal decreased by 165 million yuan year-on-year.
The company's operating performance was outstanding, the volume and price of the main business rose sharply, and new business growth continued to be realized. 1) Yiwu's foreign trade boom continued. From January to February 2024, Yiwu's total import and export value reached 116.6 billion yuan, up 47.3% year on year; the average daily passenger traffic of 2024Q1 Yiwu International Trade City exceeded 210,000, with an average daily passenger traffic of 3,523, up 160.2% year on year. The average daily traffic volume was 99,514, up 6.8% year on year, and the boom was higher than the same period in 2019 and 2023.
Benefiting from the boom in foreign trade, the company's main market business is expected to develop rapidly. At the end of 2023, the company adjusted rents for maturing positions, and rents increased by an average of 5.5%. The company expects a growth rate of no less than 5% over the next three years. Meanwhile, the third floor of Zone 2 East New Energy completed investment promotion in December 2023, and the offline market was further expanded. 2) The CG platform strengthened AI applications, and the GMV was added to reach 11 billion yuan in 2024Q1, an increase of 37.5% over the previous year; 3) The payment platform continued to explore full transaction support services, and the 2024Q1 cross-border transaction volume exceeded 6.2 billion yuan.
The divestment of Sun Company helped the company optimize its asset structure and enhance profitability. According to the company announcement, Xing Chen Enterprise Management achieved net losses of 100 million yuan and 36.46 million yuan in 2023. 2024Q1
After the divestment of Xing Chen's enterprise management, losses will be significantly reduced and the company's future profits will be improved. Furthermore, after the divestment of Xing Chen Enterprise Management, the assets of listed companies will be significantly optimized. As of 2024Q1, the net assets of Xing Chen Enterprise Management will be -960 million yuan. After the transaction is completed, the rights of owners of listed companies will be increased and the assets of listed companies will be optimized. In the future, the company will focus its energy and resources on its core business, improve profitability, reduce potential losses and liabilities, and optimize intrinsic value.
Profit forecasting and investment ratings Main business+new businesses increase profits and are optimistic about performance growth. 1) In terms of main business, it is expected that the entrance fee for the 3rd floor east of Zone 2 and the business seat usage fee will further increase the company's performance; 2) The scale of the cross-border RMB business of charitable payments will continue to expand. In 2024-2026, we expect the company's revenue to increase 24.3%/23.4%/18.8% year on year to 140.50/173.37/20.597 billion yuan, and net profit to mother to increase 7.3%/16.6%/16.5% year on year to 28.72/33.48/38.99 billion yuan. The current valuation corresponds to 16/14/12 times PE in 2024, covered for the first time, giving it a “buy” rating.
Risks suggest that overseas demand falls short of expectations, risks of changes in international trade policies, digital transformation falls short of expectations, transaction progress falls short of expectations, and new market construction and new business development fall short of expectations.