The Zhitong Finance App learned that CICC released a research report saying that performance differentiation among the 1H24 retail sectors continued to increase. Among them, the trendy entertainment sector benefited from consumer demand and brand expansion, and the Q2 boom further improved, leading companies achieved growth exceeding expectations at home and abroad; traditional employment and recruitment demand in the human services sector in Q2 weakened, and structural growth was brought about by changes in employment structure and flexible employment penetration; the department store supermarket sector was under pressure as a whole, and corporate cost reduction and restructuring was ongoing. Looking ahead to 2H24, we will focus on popular circuit leaders such as Trendy Fun, and the layout opportunities of leading companies that have established valuation bases and actively promoted change.

Trendy games and the new economy: Benefiting from experiencing consumer demand and the supply of high-quality new categories, domestic trendy games maintained a high level of prosperity. Bubble Mart 1H24/Mingchuang Premium 2Q24 mainland revenue increased by 32%/18% respectively. The same stores quickly recovered and the opening of stores progressed steadily; leading players actively expanded overseas markets, and Gaosheneng stores continued to lay out, and key markets such as the US and Southeast Asia performed well. Bubble Mart 1H24/Mingchuang Premium 2Q24's overseas revenue increased by 260%/35% respectively, and the store efficiency, operating profit margin, and brand strength were further improved.

Human resources services: There is some pressure on the 2Q24 recruitment industry, but the flexible employment industry has countercyclical attributes, supporting steady growth in leading performance. The overall employment structure has further changed. The 2Q24 sector's revenue/net profit increased by 14.8%/11.4%, and both revenue and profit were positive compared to Q1.

Department stores and supermarkets: In 2Q24, revenue and net profit of the supermarket sector decreased by 0.6% /loss by 26.9% year on year. Revenue performance stabilized, cost reduction and efficiency increased, and some companies adopted measures such as closure and adjustment to optimize operations; department store sector revenue/net profit fell 5.5%/46.9% year on year, with the division of old and new business formats, and profits continued to be under pressure.

Fund holdings: 1H24 trade and retail sector holdings have a low allocation of 0.41ppt. In terms of heavy individual stocks, leaders with location resource endowments and sufficient business innovation vitality are still popular heavy inventory targets, such as Wangfujing, Commodity City, Chongqing Department Store, etc. In addition, cross-border leaders such as Saiwei Era and Santai Co., Ltd. have entered the heavy stock category.

Looking at the direction of position adjustments, there has been an increase in the holdings of public funds related to steady and improving performance and active management adjustments, such as Commodity City and Dashang Co., Ltd.

Valuation and suggestions: Overall competition in the retail industry continues, and new and old business formats continue to differentiate. Recommendations: 1) Chaowan Circuit continues to be booming, recommending domestic and overseas circuit leaders, Bubble Mart (09992), Mingchuang Premium (09896); 2) supermarket department store sector leaders actively carry out business upgrades and store reforms to reduce costs and increase efficiency and release profits. Recommended Chongqing Department Store (600729.SH), Yonghui (601933.SH), which have leading business optimization Clear first-mover advantage, flexible use of industrial business Fast layout, digitalization is expected to help long-term growth. We recommend Cree International (300662.SZ) and Beijing Manpower (600861.SH).

Risk factors: Industry competition intensifies, adjustment is slow, overseas expansion falls short of expectations, policy supervision risks.