Incident: The company announced 2024H1 results, achieving revenue of 5.186 billion yuan, an increase of 3.67%, net profit to mother of 0.267 billion yuan, a year-on-year increase of 3.81%, net profit of 0.241 billion yuan after deducting net profit not attributable to mother of 0.241 billion yuan, an increase of 0.21%, and a net cash flow from operating activities of 0.435 billion yuan, a decrease of 19.79%.

Comment:

Revenue continued to grow steadily in 24Q2, with pressure on the profit side. 2024Q1/Q2 achieved revenue of 2.671/2.515 billion yuan, +4.55%/+2.75% year on year, net profit to mother 0.163/0.103 billion yuan, +15.95%/-10.95% year on year, and 0.151/0.09 billion yuan after deducting non-return to mother net profit of 0.151/0.09 billion yuan, respectively, +9.86%/-12.69% year over year.

The 24H1 revenue growth rate of the company's main convenience supermarket business is generally in line with the industry's growth rate. 24H1 achieved tax-inclusive main revenue of 5.791 billion yuan, an increase of 3.62% over the same period, and achieved value-added service revenue of 1.514 billion yuan. The net profit of the company's main business was 0.207 billion yuan, up 6.14% year on year, and the net profit margin of the main business was 3.57%. According to the Sichuan Bureau of Statistics, 24H1 Sichuan achieved total retail sales of social consumer goods of 1325.83 billion yuan, an increase of 4.9%; of these, retail sales of urban consumer goods were 1106.67 billion yuan, up 4.8%; retail sales of rural consumer goods were 219.17 billion yuan, an increase of 5.5%; according to consumption patterns, retail sales of goods were 1141.62 billion yuan, an increase of 4.0%; in terms of hot commodities, food, beverages, tobacco and alcohol, the same increase of 14.2%.

24H1 completed the upgrading of 202 old stores and opened 16 new stores. As of June 30, 2024, the company had 3,655 stores. The company continues to strengthen cooperation with online platforms. 24H1 attracted 5.35 million customers to the store through online sales and nearly 0.5 billion yuan in online sales.

Food, tobacco and alcohol, and household goods achieved revenue of 2.274/1.814/0.705 billion yuan respectively, or +1.66%/+9.02%/+1.33% year-on-year, accounting for 43.85%/34.97%/13.59% of total revenue. By region, the main urban area/suburban area/secondary urban area achieved revenue of 2.649/1.933/0.21 billion yuan respectively, +4.11%/+4.69%/+2.64% compared with the same period last year, accounting for 51.07%/37.29%/4.05% of total revenue.

Investment income from Xinwang Bank and Gansu Hongqi declined slightly. Of these, 24H1 received a cash dividend of RMB 45.45 million distributed by Xinwang Bank. 24H1's investment income from joint ventures and joint ventures (mainly investing in Xinwang Bank and Gansu Hongqi) was 59.3636 million yuan, a decrease of 4% over the previous year. On a quarterly basis, 24Q1/Q2 investment income for joint ventures and joint ventures was 38.2354/21.1282 million yuan, respectively, +51.09%/-41.72% year-on-year.

The business matters of the Sichuan State-owned Assets Control Company have been approved by the Sichuan State-owned Assets Administration Commission, and it is expected to strengthen resource integration and collaborative development. On December 20, 2023, Cao Shiru, the company's actual controller, and Cao Zengjun, and his co-operator, signed a share transfer agreement with Sichuan Commercial Investment (the actual controller is the Sichuan Provincial State-owned Assets Administration Commission) to transfer their 0.094 billion shares (Cao Shiru 0.082 billion shares, Cao Zengjun 0.012 billion shares) and their corresponding shareholders' rights and interests to commercial investment. The total transfer accounted for 6.91% of the total share capital of the company. The transfer price was 5.88 yuan/share, and promised to relinquish their holdings by 2027.1.1 Voting rights for the remaining 20.72% of the shares. At the same time, Yonghui Supermarket plans to transfer 0.136 billion of the company's shares to commercial investment, accounting for 10% of the company's total share capital. After the above transfer, Cao Shiru and Cao Zengjun held a total of 20.72% of the shares, Yonghui Supermarket held 11% of the shares, and the commercial investment investment held 16.91%; after the voting rights waiver agreement came into effect, the total number of voting shares of the company was 1.078 billion shares, the voting ratio of the company controlled by commercial investment was 21.32%. The company's controlling shareholder changed to commercial investment, and the actual controller of the company changed to the Sichuan Provincial Government's State-owned Assets Supervision and Administration Committee. On 2024.6.17, Commercial Investment obtained approval from the Sichuan Provincial State-owned Assets Administration Commission and agreed in principle to the acquisition of the Hongqi Chain Control Project by Commercial Investment.

The “Supplementary Memorandum of Understanding” signed with Cao Shiru and Cao Zengjun at the same time on June 17 includes the following important changes: 1) In addition to the underlying shares, Cao Shiru and Cao Zenjun plan to transfer 5.18% of the total share capital of the listed company to Sichuan Commercial Investment for the second time; 2) Raise the performance commitment standard and reduce the company's net profit from 2024-2026 to 0.28 billion yuan each year, and the “payment of cash compensation to listed companies” was adjusted to “investment payments to listed companies” “Cash compensation”, “the performance committer bears joint and several liability for performance compensation obligations during the performance commitment period” was adjusted to “the performance pledger bears joint and several liability for performance compensation obligations during the performance commitment period, provides a pledge/mortgage guarantee for Party A to fulfill its performance compensation obligations and processes pledge/mortgage registration for Party A to fulfill its performance compensation obligations.”

Profit forecast: We expect the company's revenue for 2024-2026 to be 10.43/10.68/10.89 billion yuan, up 2.9%/2.4%/2.0%, net profit to mother of 0.599/0.616/0.625 billion yuan respectively, up 6.8%/2.9%/1.4%, EPS 0.44/0.45/0.46 yuan respectively, corresponding to the closing price of July 26.

Risk factors: Stock transfers fell short of expectations, the progress of the renovation and upgrading of new stores and old stores fell short of expectations, regional competition intensified due to the expansion of low-cost businesses such as discount stores, and the profits of joint ventures fell short of expectations.