Key points of investment

Chongqing Department Store's H1 performance fell short of expectations. According to the company's 24H1 performance report, the company's total revenue was 8.98 billion yuan, down 11.56% year on year; net profit to mother was 0.712 billion yuan, down 21.06% year on year; after deducting non-net profit of 0.704 billion yuan, down 13.06% year on year. Total revenue for Q2 was 4.13 billion yuan, down 18.19% year on year; net profit due to mother was 0.277 billion yuan, down 30% year on year; net profit without return to mother was 0.258 billion yuan, down 26.50% year on year.

2024Q2 main business profit split: Chongqing Department Store's Q2 main business revenue was 4.13 billion yuan, down 18.6% year on year; main business net profit (net profit only) was 0.092 billion yuan, down 18% year on year; main business net profit (plus asset impairment loss) was 0.193 billion yuan, down 10% year on year.

Reasons for the decline in net profit due to mother:

1) Immediate Consumption achieved a year-on-year increase in net profit of 130.71% in the same period last year. The base figure was relatively high. Net profit for the current period decreased by 20.66% year on year.

2) The company's non-recurring profit and loss for the same period last year was 0.092 billion yuan (after adjustment), mainly due to a significant increase in Dengkang's fair value denominated value. The company's stock price fell to only 0.0076 billion yuan in the current period, affecting non-recurring profit and loss.

3) The company's non-recurring profit and loss for the current period was 7.6044 million yuan, a year-on-year decrease of 91.71%.

4) In the first half of 2024, the company continued to reduce costs and increase efficiency, driving rent reduction and rent reduction. Labor costs and rental costs continued to decline. The company's net profit after deducting non-recurring profit and loss and immediate consumer investment income was 0.374 billion yuan, a decrease of 4.52% over the previous year.

New business formats continue to gain strength, and fresh food discounts continue to be transformed. On May 28, Chongqing Department Store's first “fresh+discount” store, the New Century Supermarket-California Store, officially opened. The first-day sales (without tax) exceeded 0.5 million yuan, and the number of visitors reached nearly 9,000. Six days after opening, sales (before tax) were 1.986 million yuan, an average daily average of 0.331 million yuan, an increase of 538% over the previous year. On June 26, New Century Supermarket opened its second converted “fresh+discount” store on Baihe Road, Nan'an District. On the day of opening, the store's sales volume was nearly 0.4 million yuan, an increase of more than 5 times over the previous year.

The board of directors has been replaced and we look forward to future improvements. Zhang Wenzhong was re-elected as chairman, and Hu Chun and Zhao Guoqing were elected as vice-chairmen. At the same time, the board of directors decided to appoint Hu Hongwei as the company's general manager; the first meeting of the 8th board of supervisors elected Xiao Yuhua as the chairman of the 8th board of supervisors.

We believe that Chongqing Department Store, as a leader in the region, has a strong competitive advantage. Short-term performance is affected by macroeconomic fluctuations. We are optimistic that 24H2 will improve the same store through multiple activities, and reduce costs through personnel optimization and rent reform. Additionally, we anticipate that H2 asset impairment may decrease.

We expect the company to achieve operating income of 18.573/19.067/20.043 billion yuan in 2024-2026, -2.17%/+2.66%/+5.11% year-on-year, and achieve net profit of 1.334/1.428/1.589 billion yuan, +1.42%/+7.05%/+11.29% year-on-year, corresponding to PE 6X/6X/5X.

Risk warning: risk of consumption falling short of expectations, risk of passenger flow fluctuations