Introduction to this report:

The company focuses on customer quality consumption needs, focuses on the transformation from stores to quality management to continuously improve the price-quality ratio, promotes collaborative development of the business format with high quality, and profitability is expected to be further improved.

Key points of investment:

Maintain the 2024/2/5/26 EPS at 0.23/0.24/0.25 yuan. Given 0.37xPS in 2024, the target price was lowered to 10.86 yuan (previous value: 13.19 yuan), maintaining the increase in holdings.

Performance summary: 24H1 operating income of 9.362 billions/ +2.98%, net profit due to mother 0.17 billion/ -8.81%, net profit not attributable to mother 0.154 billion yuan/ -13.56%. The main influencing factor was a year-on-year decrease of 0.52% in comprehensive gross margin. 24Q2 operating income 4.173 billion yuan/ -0.24%, net profit due to mother 0.022 billion yuan/ -53.78%, net profit not attributable to mother 0.018 billion yuan/ -51.9%.

The shift from focusing on stores to quality management is comparable to an increase of 13.69% in store traffic. Consumer demand is shifting to quality, and the company adapts to changes and shifts from focusing on stores to quality management in terms of category structure, product quality, price-quality ratio, service, environment, etc. The continuous improvement in product quality-price ratio enhances customer trust and drives a 13.69% increase in passenger traffic in comparable supermarket stores. At the same time, through optimization of store area, products, processes, systems, etc., the cost rate of comparable stores has been significantly reduced.

High quality promotes the collaborative development of business formats, and online and offline collaboration capabilities are constantly being enhanced. The company adheres to the “region-intensive, multi-format complementary” development strategy and promotes the collaborative development of comprehensive supermarkets, community fresh food supermarkets, snack stores, discount stores and other business formats with high quality. During the reporting period, the company opened 69 new stores, with a total of 1,097 stores, including 997 direct-run stores, 100 franchise stores, and 104 Yueji snack stores. The company relies on a dense network of chain stores and uses its own platforms and third-party platforms to continuously promote the integrated development of online and offline. During the reporting period, online sales increased by about 22% year on year, and online customer traffic increased by 18.49% year on year.

Risk warning: consumer confidence is insufficient, competition is intensifying, and new business formats fall short of expectations;