Core views:

Event: Commodity City released its 2024 semi-annual report. (1) In the first half of 2024, the company achieved revenue of 6.77 billion yuan, an increase of 31.1% over the previous year. The main reason was that revenue from market operations, product sales and trade services all increased over the same period last year. 24H1 achieved gross profit margin of 33.1%, up 2.49 pps year on year; realized net profit of 1.45 billion yuan, down 27.5% year on year; net profit to mother was 21.4%, down 17.32 pps year on year. Among them, the real estate-related business contributed 1.05 billion yuan to investment income, while the main business profit increased by 0.51 billion yuan year on year. By business, the revenue from the trade services business was 0.37 billion yuan, an increase of 30.6% over the previous year. Merchandise sales revenue was 3.9 billion yuan, up 37.2% year over year. (2) 24H1, the company's sales expenses rate was 1.4%, down 0.14 pps from the previous year. The management expense ratio was 3.2%, down 1.97 pps year over year. (3) In 24Q2, the company achieved revenue of 4.09 billion yuan, a year-on-year increase of 34.4%. Net profit to mother was 0.73 billion yuan, down 5.3% year over year. Net profit after deducting non-return to mother was 0.73 billion yuan, a year-on-year decrease of 4.1%.

Comment: (1) 24H1 achieved a 26.0% increase in market operations, mainly due to? The rent on the east third floor of District 2 increased this year, and the rent on the existing leasable area increased at maturity (according to the company's annual report for '23). At the same time, the company's global digital trade center is progressing steadily, which is expected to drive the growth of market operating business revenue in the future. (2) Yiwu Pay turns losses into profits, and the company continues to improve the CG platform business and supply chain services. The 24H1 CG platform added 45 service products, with a total of 194. 0.017 million users of the CG platform already use AI products.

Profit forecasting and investment advice. We expect the company to achieve overall operating income of 14.07/16.53/19.21 billion yuan in 2024-2026, up 24.5%/17.5%/16.2% year on year; net profit to mother will be 2.86/3.2/3.83 billion yuan, respectively, with a year-on-year increase of 6.8%/11.9%/19.8% in 2024-2026. Referring to comparable company valuations, the company was given a 2024 20x PE valuation, with a reasonable value of 10.43 yuan/share, giving it a “buy” rating.

Risk warning. The risk of macroeconomic fluctuations; the risk of new business development falling short of expectations; the risk of insufficient talent reserves. The company may face the risk of insufficient reserves of professional talents and complex talents.