With the help of Fat Donglai and his family in Qinghai, Yonghui's first remodeled store in Zhengzhou, the Xinwan Plaza store, closed on May 31 and entered the comprehensive reform phase. It is expected to resume normal business on June 19. This reform will carry out comprehensive adjustments in terms of product structure, quality, price, store layout, flow, environment, service, and employee treatment. Store products will fully follow the product structure of Fat Donglai, with Yonghui's existing supply chain system as the main focus, and Fat Donglai will make structural additions to greatly improve product quality. At the same time, improving employee remuneration and shortening working hours will also be prioritized and adjusted simultaneously to enhance employee happiness in order to better serve customers.
This reform is mainly based on team management by Fat Donglai. Guan Na, general manager of Fat Donglai Supermarket, and Wang Ming, general manager of Fat Donglai Xinxiang, are the two places under the direction of the two places. Chairman Zhang Xuansong of Yonghui Supermarket will personally sit in Zhengzhou and draw national elites to form a “Yonghui Supermarket Reform Team” to cooperate with Fat Donglai to carry out on-site reforms. On the basis of summing up the experience of reforming the stores first, the subsequent adjustments were carried out gradually by the Yonghui Supermarket Reform Team in different regions and timeslots under the guidance of Fat Donglai's team. The specific measures of this adjustment include:
1. Products: Retain first-line brands, select products with high characteristics and reliable quality, resolutely eliminate products with no guarantee of quality, and plan to supplement fashion product categories. According to the First Financial Report, the Xinwan Plaza store will eliminate 70% of the products removed from the shelves and reorganize them with reference to Fat Donglai's product structure. In the future, the product structure will reach more than 90% of Fat Donglai; at the same time, the store will introduce some of Fat Donglai's popular products, including DL's own brand series.
2. Price: Optimize procurement channels, filter commodity prices, ensure real pricing and reasonable profits.
3. Environment: Change the layout of the store, no longer force traffic, and provide a safe, convenient and comfortable shopping environment.
4. Employees: Raise wages, reduce working hours, and increase benefits. According to the First Financial Report, the Xinwan Plaza store currently has 79 employees. The store structure has been adjusted to 149, and a recruitment plan for new employees has been launched; in terms of remuneration, salary increases have been achieved for all employees, and salaries have increased by more than 1,000 yuan for grassroots employees.
5. Business hours: Changed to 9:30-21:30 and shortened by 3 hours.
Yonghui Supermarket's revenue in 2023 was 78.6 billion yuan, down 12.71% year on year; net loss to mother was 1,329 billion yuan, down 51.90% year on year; revenue for the first quarter of 2024 was 21.7 billion yuan, down 8.98% year on year, net profit to mother was 736 million yuan, up 4.57% year on year, and net profit after deducting net profit of 599 million yuan.
The company opened 12 new stores in 2023, closed 45 stores, and opened 3 new stores in the first quarter of 2024. It continues to transform, upgrade, reduce costs and increase efficiency through measures such as closing end-of-department stores, promoting omni-channel digitalization, and improving store operation efficiency and store optimization.
This restructuring is another powerful step for Fat Donglai to join hands with supermarket leaders to jointly promote industry upgrading and transformation after helping Backgao. Yonghui has opened 964 stores in 29 provinces across the country, including 42 in Henan and 20 in Zhengzhou. We believe that the impact of short-term department store and even regional adjustments on overall performance is almost negligible, but what is more important is the continuous optimization of subsequent management ideas and management systems. If subsequent measures such as supply chain reform and management optimization can be effectively transformed into same stores and profits, it is expected to lead the industry to achieve efficiency improvements.
Update profit forecasts. Net profit due to mother in 2024-2026 is expected to be 91 million yuan, 356 million yuan, and 812 million yuan, respectively, up 106.9%, 290.8%, and 128.1% year-on-year; the current market value is 262 times PE in 2024 and 0.33 times PS in 2024. Considering that the company's net interest rate is still in the early stages of restoration, we maintain the PS valuation method and give it 0.4-0.5 times PS in 2024, corresponding to a reasonable market value range of 29 billion yuan to 36.3 billion yuan, and a reasonable value range of 3.20-4.00 yuan, maintaining an investment rating of “superior to the market”.
Risk warning. Uncertainty about online business, increased industry competition, and uncertainty about investment returns and impairment losses.