Incident: The company's 2024H1 revenue was 6.119 billion yuan, -1.81% YoY; net profit to mother was 0.154 billion yuan, -28.34% YoY. 2024Q2's revenue was 2.778 billion yuan, -2.42% YoY; net profit to mother was 0.005 billion yuan, -28.33% YoY.

Shopping malls outperformed department stores, and the supermarket business is under pressure due to changes in the supermarket business. By business type, 2024H1's department store revenue was 1.073 billion yuan, or -7.13% year over year. The department store vigorously promoted the zoning of the first floor, increased the transformation of the department store into a community living center, and promoted the transformation of department stores into community living centers. Passenger traffic increased year-on-year. Comparable store 2024H1 revenue was -4.49% year over year, profit -9.81% year over year, and occupancy rate was 93.13%. 2024H1 shopping center revenue was 1.09 billion yuan, +10.20% YoY, comparable store revenue +5.42% YoY, profit +101.55% YoY, and occupancy rate 92.34%. 2024H1 supermarket revenue was 3.884 billion yuan, -3.14% year over year. The supermarket business restructured the store space, adjusted product categories, and launched Douyin Hourly Delivery in April. Adjustments and changes led to short-term pressure on comparable stores. 2024H1 comparable store revenue decreased by -1.27% year over year, gross margin decreased by 1.30pct, profit -17.09% year over year, and customer unit price -4.24% year over year. As of 2024H1, the company operated 41 shopping malls, 59 department stores, and 112 supermarkets. The number of department stores and shopping malls remained the same as at the beginning of the year, with a net decrease of 4 supermarkets compared to the beginning of the year.

The gross profit margin and expense ratio have declined. 2024H1's gross margin was 37.03%, -0.91 pct year on year, net margin was 2.52%, -0.91 pct year on year, sales, management, R&D, and finance ratio was 29.42%/3.03%/0.68%/0.48%, respectively, -0.90/+0.08/-0.02/-1.11 pct year on year, respectively. The decline in the sales expense ratio is due to the company's efforts to reduce costs and increase efficiency. The decline in financial expenses is due to a sharp increase in the company's interest income from large deposit certificates and a reduction in interest expenses confirmed for rental properties.

Investment advice: The company is a traditional retail leader mainly in the shopping and supermarket business. In recent years, it has continued to promote business format upgrading and store content optimization, boosting the second growth curve of online business and TOB business layout, and continuously improving competitiveness. We forecast net profit to mother for 2024-2026 to be 0.223/0.266/0.296 billion yuan, corresponding PE is 21.4/18.0/16.2 times, respectively, maintaining the “gain” rating.

Risk warning: the risk that macroeconomic consumption power will fall short of expectations; the risk that the company's market share and profitability will decline due to increased competition; the risk that channel changes will impact offline business models.