Key points of investment

Event: The company released its 2024 semi-annual report. With 2024H1, the company achieved revenue of 8.98 billion yuan, or -11.6% year on year after adjustment; net profit to mother was 0.712 billion yuan, -21.1% YoY; net profit after deducting non-net profit was 0.705 billion yuan, -12.9% YoY. Corresponding to 2024Q2, the company achieved revenue of 4.13 billion yuan, -18.5% YoY; net profit to mother 0.277 billion yuan, -28.9% YoY; and deducted non-net profit of 0.259 billion yuan, or -25.3% YoY. The company's performance is in line with the performance forecast.

Net interest rates declined slightly due to declining revenue and fee leverage. 2024Q2, the company's gross margin/ net sales margin was 24.8%/6.7%, +0.15/ -1.9pct; the sales/management/ R&D/ finance expense ratio was 14.8%/5.2%/0.1%/0.3%, +1.5/ +0.5/ -0.04/ -0.5pct year over year. Furthermore, in the same period last year, consumer finance immediately contributed to high profits from equity law investment income and fair value returns achieved through the listing of Dengkang Dental, which is also the reason why net interest rates were high last year.

By business: The immediate decline in consumer finance will be greater than that of the main retail industry. The company's business can be divided into two major sectors: retail business and immediate consumer finance. As of 2024H1, consumer finance immediately contributed 0.332 billion yuan to investment income, -21% year-on-year. Non-net profit from the main business (mainly retail business) was 0.37 billion yuan, -5% year-on-year. Consumer finance revenue is now basically stable. We believe that profit margins have declined due to increased accounting and other reasons.

By business type: Pressure on the auto trade business dragged down overall performance. 2024H1, the company's department store/ supermarket/ electrical/ auto trade business achieved revenue of 13.3/ 36.8/ 16.6/ 2.23 billion yuan, -6.9%/-28.7% YoY; gross margin was 72.5%/25.1%/19.4%/6.4%, -1.3/ -1.1/+0.5/-0.04pct. There was a slight decline in the department store and supermarket business, while the electrical appliance business was stable, and the automobile trade business was under severe pressure.

Continue to consolidate core capabilities, and continue to accumulate and strengthen location advantages: ① Department Stores and Electric Appliances launched a “Joint Business Plan” to deepen the depth of strategic brand cooperation, and the strategic brand sales of department stores+appliances exceeded 2.5 billion yuan. ② Continue to strengthen the supply chain, increase the proportion of direct procurement, and increase the overall gross profit margin. ③ Develop differentiated products, “Multi-point Baking” expanded to 6 stores, “Baishi Butcher Shop” expanded to 13 stores, and the supermarket fishery joint business became self-operated, and both sales and gross profit increased. ④ Continue to promote the “six major stores” strategy to achieve organic integration of various retail formats to give full play to the overall advantages. ⑤ Promote cost reduction, and labor and rent costs are effectively controlled.

Profit forecast and investment rating: We maintain the company's net profit forecast of 13.3/14.0/ 1.47 billion yuan, corresponding to the closing price of September 1, which is 6/6/5 times the PE. Considering the company's current low valuation, high historical dividend rate, and superior asset quality in the industry, we still maintain a “buy” rating.

Risk warning: increased competition in the industry, sluggish demand for terminal consumers, changes in consumer finance operations and policies, etc.