Both revenue and net profit performance in FY24 were weak. In FY25 or the 2024 fiscal year, the company achieved operating income of 72.57 billion yuan, or -13.3% year over year, of which product sales revenue was -13.8%, rental income -0.2% year over year; net profit to mother was -1,605 billion yuan, which was a significant loss compared to the same period in FY23, mainly affected by impairment losses, etc. At the beginning of FY25, the company's management was adjusted, and Shen Hui, a former executive of Auchan, was appointed as the company's CEO, and once again focused on revenue growth and reshaped the price advantage. Revenue recovered slightly year-on-year on the fiscal year ending FY25 and reversed the negative trend. We adjusted the 25-26 fiscal year and introduced a forecast for fiscal year 27, which predicted EPS of 0.042/0.052/0.069 yuan, respectively (0.087/0.108 yuan before the 25-26 fiscal year). As of 2024/5/23, according to Wind's unanimous expectations, the average PE of comparable companies in the 2024 natural year was 40. The company was given 40 PE in fiscal year 2025, corresponding to a target price of HK$1.82 (previous value of HK$2.37), maintaining an “gain” rating.
Same-store sales are still declining. Online B2C revenue increased slightly year-on-year. The company's same-store sales in FY24 were -6.6% year-on-year (FY23 -4% year-on-year). Among them, although offline traffic has recovered, customer unit prices have declined significantly year over year. Furthermore, the company's closure of some loss-making stores, contraction of insurance and supply business, and weakening customer unit prices had an adverse impact on the overall product sales business. During the reporting period, the company closed a net of 14 large-scale stores, opened 20 new ones, Runfa, and opened 3 new member stores. As of March 31, 2024, the company had 472 large-scale stores, 32 Zhongrunfa stores, and 3 member stores. Although the unit price for online (B2C business) customers has declined, customer flow is positive, and revenue has achieved low digit growth.
Gross profit margin continued to rise slightly year over year. The gross profit margin, sales and marketing expense ratio, and administrative expense ratio for FY24 were +0.1 pct, +2.9 pct (+1.3 pct if impairment is not taken into account), and +0.3 pct (+0.1 pct if impairment is not taken into account), respectively.
The company's overall revenue performance was poor, and the expense ratio increased under the influence of operating leverage. At the same time, impairment losses were significant (1,088 billion yuan before tax; the impact after tax was 1,046 billion yuan), which had a significant negative impact on the statements.
FY25 strategy focuses on the essence of retail
In FY25, the company's management was adjusted to once again focus on the essence of retail, emphasizing price traction. The company plans to strengthen the supply of starting price products and fortress products, attract consumers to enter stores with high quality prices, and focus on reducing costs, with reversing losses as the first goal. Considering the company's active strategic adjustments, we are optimistic about the company's revenue recovery and profit and loss reversal in FY25.
Risk warning: Retail demand continues to be sluggish. The business transformation fell short of expectations.