Key points of investment:

The company released its 2024 semi-annual report, and the results fell short of expectations. In the first half of 2024, the company achieved operating income of 6.035 billion yuan, a year-on-year decrease of 5.40%, a year-on-year net profit of 0.293 billion yuan, a year-on-year decrease of 43.36%, and realized net profit deducted from non-mother of 0.32 billion yuan, a year-on-year decrease of 30.13%. In the second quarter of a single quarter, the company achieved operating income of 2.727 billion yuan, a year-on-year decrease of 9.49%, and realized net profit of 91.27 million yuan, a year-on-year decrease of 68.65%. After deducting non-net profit, the company achieved 0.127 billion yuan, a year-on-year decrease of 45.81%. The main reason for the decline in the company's revenue and profit side is due, on the one hand, to pressure on terminal consumption in the market environment. On the other hand, it is also affected by the high upfront costs of the company cultivating new businesses and new stores.

The city's tax exemption policy has taken hold. The company terminated its joint supermarket business. Ole's business has shown strong resilience, and the duty-free business continues to grow. The Ministry of Finance, the Ministry of Commerce, the Ministry of Culture and Tourism, the General Administration of Customs, and the State Administration of Taxation issued the “Notice on Improving the City's Duty Free Shop Policy”, which clearly states that from October 1, 2024, the management of duty-free shops in the city will be regulated in accordance with the “Interim Measures on the Administration of Duty Free Shops in the City” to promote the healthy and orderly development of duty-free shops in the city. The company decided to terminate its supermarket business and exit after comprehensively considering the development prospects of the supermarket industry and the current state of operation of its joint venture supermarkets. In the current business format, department store/shopping center/olley/specialty store/duty-free business achieved revenue of 23.19/15.42/1.14/0.758/0.17 billion yuan, respectively, -13.65%/+0.01%/+0.20%/-3.09%/+121.17% compared with the same period last year.

The company continues to optimize the store structure and comprehensively promote key projects. The company efficiently promotes preparations for new stores and continuously optimizes the store structure. Guiyang Xinyin 1950 Discovery Shopping Center opened in May '24, and Guiyang CCPARK, Suzhou, Linfen and Lhasa Wangfujing shopping centers are scheduled to open within 24 years. The Chongqing Wangfujing Olein Market was adjusted and closed at the end of June.

The Xidan shopping mall renovation project plan is being fully advanced. The design of the plan has been completed and admission permission has been obtained, and pre-construction procedures are currently being carried out. Actively develop duty-free port marketing plans and continuously optimize operations and product categories. The company's Wanning Wangfujing International Duty Free Port formulated marketing strategies according to seasonal changes, innovated display and passenger flow design, and achieved business growth.

At the same time, the company continues to optimize its e-commerce model, and the number of online visits and users continues to grow. According to market demand, the company adjusted its brand portfolio in a timely manner, expanded categories such as perfume, cosmetics, alcohol, etc., and strengthened the development of digital and food explosives, and optimized the advantages of centralized procurement in children's categories.

Investment analysis: The company's key projects are progressing smoothly, offline passenger flow is gradually recovering, and the city's tax exemption policy is beneficial to the development of the company's duty-free business in the long run. Considering the short-term pressure on terminal consumption, we lowered our profit forecast. The net profit for 24-26 is estimated to be 0.749/0.86/0.975 billion yuan (previous value 0.905/1.109/1.271 billion yuan), and the current stock price is 18/16/14 times PE for 24-26, respectively. Considering the advantages of duty-free licenses in the company and the certain resilience of traditional retail business, we selected China Zhongbin, Tianhong Co., Ltd., and Quanjude as comparable companies, based on the 24-year comparable company valuation The company has 25 times PE in 24 years, and the current stock price has room to rise by more than 20%, maintaining a “buy” rating.

Risk warning: Market competition has intensified, consumption recovery falls short of expectations, and the development of duty-free business falls short of expectations.