The main business of 24H1 increased steadily, and business outside the province contracted and reduced losses. The rating company released its semi-annual report on July 25. 24H1's revenue increased 3.67% year over year to 5.19 billion yuan, and net profit to mother increased 3.81% year on year to 0.267 billion yuan. 24H1 implemented the product structure and store type adjustments, renovated and upgraded 202 old stores, opened 16 new stores, and increased sales through online and offline linkages. The main business (tax included) increased by 3.62% to 5.791 billion yuan over the same period last year. The scale of business outside the province (Hongqi, Gansu) has shrunk, and losses have decreased significantly. 24H1 lost 2.69 million yuan and 9.83 million yuan. Looking ahead to H2, based on a steady recovery in CPI, we are optimistic that the Hongqi chain will continue to increase its share of convenience stores in Sichuan Province through continuous optimization of stores and lean opening. We maintain the 24-26 net profit forecast of 0.6, 0.62, and 0.65 billion yuan. Referring to the comparable company Wind's consistent forecast of 20.9 xPE in 2024, considering that there is some uncertainty about the company's actual controller changes, the company was given 13xPE, maintained a target price of 5.72 yuan (previous value of 6.60 yuan), and maintained an increase in holdings rating.

Q2 revenue growth slowed slightly. Xinwang Bank contributed to a year-on-year decrease in investment income. Q2's revenue increased 2.75% year over year, and the growth rate declined slightly by 1.80 pcts month-on-month compared to Q1, mainly due to pressure on essential consumer prices dragging down the same stores. Facing changes in the competitive environment, the company actively adjusted its stores. By optimizing the store's product structure, improving the decoration level, and adjusting the store type, the company upgraded 202 old stores and opened 16 new stores in 24H1. As of 24H1, the number of company stores reached 3,655. Q2 The company's net profit to mother fell 10.95% year on year to 0.103 billion yuan. The decline was mainly due to the investment income recorded in Q2 of 22.36 million yuan and a year-on-year decline of 15.58 million yuan, of which investment income was mainly contributed by Xinwang Bank.

Gross margin was pressured by changes in product structure. Store optimization and online efforts boosted the cost ratio improvement of 24H1 during the period. The company's food/daily use department store ratio fell 0.87 pct/0.32 pct to 43.85%/44.72% year on year, tobacco and alcohol increased 1.72 pct to 34.97% year on year. Changes in product structure caused the company's gross margin to fall 0.37 pct to 28.98% year on year. In terms of the cost rate during the period, thanks to the company's continuous promotion of online and offline channel integration, and pioneering online distribution and store conversion, 24H1 attracted 5.35 million customers to the store through online, and achieved 0.5 billion yuan in online sales. In line with the renovation and upgrading of existing stores, the company's operating efficiency has been improved and the cost ratio for the period has been optimized. The 24H1 sales expense ratio fell 0.55pct year over year to 21.94%, and the management expense ratio fell 0.09pct to 1.44% year over year.

The actual controller change progressed steadily, waiting for positive changes to be brought about by the entry of state-owned assets. On December 20, 23, the company announced that actual controller Cao Shiru and his co-actors Cao Zengjun and Yonghui Supermarket proposed an agreement to transfer part of the shares to Sichuan Commercial Investment. After the transfer was completed, the actual controller changed to Sichuan Commercial Investment. The actual controller for commercial investment in Sichuan is the Sichuan State-owned Assets Administration Commission, which has rich industrial resources. As of 24H1, the equity change process is still being steadily recommended, waiting for state-owned assets to take over and inject new development vitality into the Hongqi chain.

Risk warning: Convenience store competition intensifies, economic recovery falls short of expectations, and equity transfers from actual controllers fall short of expectations.