FY2024 results are in line with market expectations
The company announced financial results for the 2024 fiscal year (ending March 31): revenue of $72.57 billion, down 13.3%; net loss to mother of $16.01 billion (net profit of the previous year), which is in line with performance forecasts and market expectations. Excluding impairment losses, an operating profit of 340 million yuan and an operating profit margin of 0.5% was achieved.
Development trends
1. The same store is under pressure, and the online B2C and member store business performance is excellent. By business type, 1) Product sales revenue was 69.43 billion yuan, down 13.8%. The average customer order declined mainly due to the closure of end-of-department stores, the contraction of insurance and supply services, and the decline in demand for stocking. The company's core business, same-store business, fell 6.6%. By channel, offline business and online B2C business were all dragged down by the decline in customer orders, but the growth rate of online B2C traffic was better than that of offline. In the end, the online B2C business achieved low digit growth, and offline revenue declined by a higher number of units compared to the same period. 2) Rental income was 3.12 billion yuan, which was basically the same as the previous year, and the vacancy rate remained at 3-4%. 3) The new revenue source achieved revenue of 16 million yuan from membership fees. The cumulative number of paid members during the fiscal year was close to 140,000, and the total number of members was close to 240,000. In terms of exhibition stores, the number of stores in the FY24 hypermarket decreased by a net of 14 to 472, a net increase of 20 to 32 in the Super League, and 3 new M member stores.
2. Gross margin increased steadily, and the decline in the same store and accrued impairment dragged down profit performance. FY24 gross margin also increased by 0.1ppt to 24.7%. The company actively promoted cost reduction and fee control measures, and personnel expenses were reduced, but due to the decline in the same store, the cost side was still under pressure. Sales and management expenses increased by 2.9 ppt/0.3ppt to 25.1%/3.1%, respectively. In addition, accrued impairment losses due to store closures and impairment of goodwill totaled $1.35 billion. Under the combined impact, net profit margin fell by 2.8ppt to -1.4%.
3. The strategic transformation is showing initial results, focusing on profitability restoration and new business format expansion. 1) Business strategy adjustment: At this performance meeting, the new CEO introduced the company's strategy update. Currently, the team emphasizes returning to the essence of retail, with the primary goal of reversing losses. Specifically, the company plans to increase medium- and low-price products to reshape core price competitiveness. At the same time, management plans to enhance scrutiny of first-tier store operations, improve the level of fine management from a customer perspective, thereby boosting the performance of the same store and optimizing operating leverage and profit margins through an increase in the number of visitors. According to the company's results conference, the year-on-year growth rate of the same store has been positive since the new fiscal year (April to now). Among them, the growth rate in May was about 6%, and the net profit performance in April exceeded the company's expectations; 2) New business format expansion: M member stores continued to expand and refine the profit model, and the first store in Yangzhou had good card renewal rates and cash flow; FY25 plans to open 4 new stores; some mature stores in the Chinese Super League business achieved positive cash flow in April. Continue to pay attention to the results of the company's same-store restoration, profitability improvement, and new business format expansion.
Profit forecasting and valuation
We kept the net profit forecast for FY2025 unchanged and introduced a net profit forecast of 380 million yuan for the 2026 fiscal year. The current stock price corresponds to 0.2/0.2 times P/S for the 2025/26 fiscal year. Maintaining an outperforming industry rating and target price of HK$2.3, corresponding to 0.3/0.2 times P/S in the 2025/26 fiscal year, with 42% room for growth.
risks
Competition in the industry intensified; online business growth fell short of expectations; new business expansion such as member stores fell short of expectations.