Revenue increased 1.78% in the first three quarters, putting pressure on profit performance. The company achieved revenue of 14.127 billion yuan in the first three quarters, +1.78% year-on-year, net profit of 0.188 billion yuan, or -12.03% year-on-year, after deducting non-net profit of 0.157 billion yuan, or -22.5% year-on-year. Looking at the third quarter of the single quarter, the company's revenue was 4.765 billion yuan, and net profit to mother was 0.018 billion yuan, or -33.71% year-on-year, after deducting non-net profit of 2.7896 million yuan, or -88.45% year over year. Of these, non-revenue was mainly a profit and loss of 23.21 million yuan from the disposal of illiquid assets. Overall revenue grew slightly due to changes in industry sentiment, and profits were pressured by increased costs of optimizing and adjusting store layouts, as well as increased costs such as logistics and freight costs.

The supermarket business has performed well, and the stores are progressing steadily. By business type, among direct-run stores in the first three quarters, revenue from the comprehensive supermarket business increased by 5.06%, the revenue from the community fresh food supermarket business increased by 7.64%, and the revenue from the rural supermarket business fell 8.52% year on year, which was affected by the adjustment of rural supermarkets to community fresh food supermarkets. Revenue from other businesses, including snack stores and Haohuixing discount stores, increased 57.9% year over year. In terms of store expansion, in the third quarter of 2024, 13 new direct-run stores were opened, and 30 new affiliate stores were added. At the same time, 36 stores were closed due to reasons such as optimizing the company's network layout, falling short of expectations in store operating performance, and termination of leasing contracts, etc., bringing the total number of stores to 1103 at the end of the period.

Gross profit margin is stable, and inventory turnover efficiency is improved. The company's comprehensive gross profit margin for the third quarter of 2024 was 22.65%, which was basically stable year on year. Among them, the gross margin of the comprehensive supermarket direct-run store business was +0.18pct to 19.78% year on year.

The sales expense ratio for the third quarter was 18.79%, +0.53 pct year on year. The related expenses were relatively rigid due to store expansion. The management expense ratio for the third quarter was 1.93%, which was generally stable year over year. The number of inventory turnover days in the first three quarters was 48.92 days, a year-on-year decrease of 10 days, and turnover efficiency was optimized. Net operating cash flow for the first three quarters was 1.567 billion yuan, a slight decrease of 6.42% year-on-year.

Risk warning: Store expansion falls short of expectations; same store falls short of expectations; snack and discount business falls short of expectations.

Investment advice: The company's operations outside of Shandong Province are gradually maturing and profitability is improving, and performance flexibility is expected to gradually be released. At the same time, the business format continues to improve to seize the growth opportunities of the new business format. In the long run, the company will continue to consolidate supply chain construction capabilities and strengthen core barriers in changing retail competition. Considering the cost impact of the company's short-term store optimization, we lowered the company's 2024-2026 net profit to 0.203/0.222/0.24 billion yuan (previous values were 0.224/0.247/0.274 billion yuan, respectively), corresponding PE was 35.6/32.6/30 times, respectively, maintaining the “better than the market” rating.