The company released its 2024 semi-annual report. 1H24 achieved revenue of 9.362 billion yuan, a year-on-year increase of 2.98%; net profit to mother was 0.17 billion yuan, a year-on-year decrease of 8.81%, after deducting non-net profit of 0.154 billion yuan, a year-on-year decrease of 13.56%.

Diluted EPS of 0.28 yuan, return on net assets of 6.59%. Net operating cash flow of $0.733 billion.

2024 semi-annual profit distribution plan: cash dividend of 1.1 yuan for every 10 shares.

Brief review and investment advice.

1. 1H24's revenue of 9.362 billion yuan increased by 2.98%, and both fresh revenue and gross margin increased. Revenue in 2Q24 fell 0.24% by 4.173 billion yuan. The decline in growth from month to month is estimated to be related to the pressure on the consumption environment. The 1H24 supermarket's comparable store traffic increased 13.69%, driving the increase in comparable store sales over the same period.

(A) By business sector, the overall revenue exceeded 5.001 billion yuan, up 7.72% year on year; community fresh revenue was 2.352 billion yuan, up 4.66% year on year; rural supermarket revenue was 0.979 billion yuan, up 0.92% year on year.

(B) By product, fresh revenue was 3.857 billion yuan, up 4.37% year on year; food washing revenue was 4.468 billion yuan, up 4.23% year on year; department store revenue was 0.285 billion yuan, down 8.91% year on year.

(C) By region, revenue from Shandong was 7.102 billion yuan, up 2.64% year on year; revenue from outside the province was 1.509 billion yuan, up 9.61% year on year.

2. Focus on key regions and open high quality stores. In accordance with the strategy of “regional concentration and complementarity of multiple business formats”, the company focuses on key regions and qualitatively promotes the collaborative development of integrated supermarkets, community fresh food supermarkets, snack stores, discount stores, etc. 1H24 opened 69 new stores, including 27 direct-run stores (13 supermarkets, 12 Yueji snack stores, 2 Haohuixing discount stores) and 42 franchise stores; the total number of stores at the end of the period was 1,097, including 997 direct-run stores, 100 franchisees, and 104 Yueji snack stores at the end of the period.

3. The comprehensive gross margin of 1H24 decreased by 0.52 pct, and the main gross margin increased by 0.05 pct. 1H24's consolidated gross profit margin was 23.57%, a year-on-year decrease of 0.52 pct. Among them, the gross profit margin of the main business increased by 18.81% by 0.05pct. In the subregion, Shandong increased 0.02 pct, and regions outside the province increased 0.21 pct; by product, fresh food washing, and department store gross margins increased by 0.80 pct, decreased by 0.25 pct, and decreased by 2.66 pct, respectively.

The cost rate decreased by 0.1 pct during the 4.1H24 period. The cost rate during the 1H24 period was 20.94%, a year-on-year decrease of 0.10pct.

Among them, the sales expense ratio remained flat at 17.59%; the management expense ratio decreased by 1.89% by 0.06pct; the financial expenses ratio decreased by 1.38% by 0.03pct; and the R&D expense ratio decreased by 0.01pct by 0.08%.

5. 1H24's net profit of 0.17 billion yuan fell by 8.81%, and Inner Mongolia's profit was released. Total profit of 1H24 was 0.225 billion yuan, down 8.71% year on year; net profit to mother was 0.17 billion yuan, down 8.81% year on year; after deducting non-net profit of 0.154 billion yuan, down 13.56% year on year. The subsidiary Inner Mongolia Villehui (70%) earned 0.538 billion yuan, net profit of 20.13 million yuan (1H23 was only 5.33 million yuan, 27.15 million yuan for the full year of 2023), and a net interest rate of 3.74%.

Maintain judgment on the company. ① Strong core competitiveness: intensive regional layout, multi-format collaboration, supply chain construction, building competitive barriers; ② Continued loss reduction trends outside the province: In recent years, there has been a significant loss reduction trend in other provinces. We believe that stabilizing the same store and reducing losses outside the province is expected to jointly release the company's profit elasticity over the next three years. ③ Innovate and test the waters of a new business format: The snack chain brand “Yue Ji Snack” was launched. The business model based on this business model has basically worked. Franchise cooperation has been opened to speed up market expansion, while refining the “Haohuixing” hard discount store model to enhance the collaborative advantages of multiple business formats.

Update profit forecasts. Net profit for 2024-2026 is expected to be 0.234 billion yuan, 0.274 billion yuan, and 0.302 billion yuan, respectively, up 71.6%, 17.1%, and 10.2% year-on-year; the current market value corresponds to 2024-2026 PE 21 times, 18 times, and 16 times, respectively, corresponding to PS 0.26 times, 0.24 times, and 0.23 times, respectively. Considering that the company is actively innovating its business format and the trend of loss reduction outside the province is more clear, it was given 0.35-0.45 times PS in 2024, corresponding to a reasonable market value range of 6.48 billion yuan to 8.33 billion yuan, and a reasonable value range of 10.15-13.05 yuan, giving it an investment rating of “superior to the big market”.

Risk warning. The speed of opening stores and integration results fell short of expectations; the offsite cultivation period was lengthened; e-commerce channels were diverted; and competition intensified.