occurrences

Report for the third quarter of 2024. In the first three quarters of 2024, the company achieved revenue of 8.5 billion yuan, down 8.3% year on year; net profit to mother was 0.43 billion yuan, down 34.1% year on year, and net profit after deducting non-return to mother was 0.36 billion yuan, down 39.1% year on year. In the third quarter of a single quarter, the company achieved revenue of 2.46 billion yuan, a year-on-year decrease of 14.6%. Net profit to mother was 0.13 billion yuan, an increase of 2.5% year-on-year, and net profit after deducting non-return to mother was 0.04 billion yuan, a year-on-year decrease of 70.5%.

The retail market trend continues, and diversified duty-free business formats are being actively deployed

In the first three quarters of 2024, the retail market continued to be structurally adjusted, consumption of traditional products was weak, and new lifestyle categories continued to rise. Affected by this, the company's revenue for the first three quarters/single third quarter fell by 8.3%/14.6%, respectively. The differentiation of the business format also continued in the third quarter. In the first three quarters, Ole's business and shopping center business revenue were +4.4%/-1.6% year-on-year, showing a certain degree of impact resistance and strong operational resilience, and became an important force supporting the company's efficiency platform. The revenue of department stores/specialty stores in the first three quarters was -15.5%/-5.0% year-on-year, respectively, and the pressure still exists. Revenue from the duty-free business increased 68.6% year-on-year in the first three quarters, and the company actively developed port tax exemptions and laid out tax exemptions within the city. Specifically, in terms of tax exemptions within the city, the “Interim Measures on the Administration of Duty Free Stores in the City” have been introduced, and the company is continuing to promote related work in accordance with policy requirements and the company's overall strategic layout.

Gross margin decreased year on year, with non-net profit deducted falling 70.5% year on year in the third quarter. The gross margin of the 2024Q3 company was 38.3%, down 1.1 pct year on year. Although the gross margin pressure on taxable businesses such as department stores, shopping centers, and Olle was obvious, along with continuous business development, the gross margin of the duty-free business in the first three quarters was 16.8%, up 0.9 pct year on year. The company's sales expense ratio, management expense ratio, and financial expense ratio for the third quarter were 16.4%, 13.0%, and 2.2%, respectively. The sales expense ratio and management expenses increased by 1.8 pct/1.8 pct year on year, respectively, but the financial expense ratio decreased by 1.0 pct year on year. Overall, due to pressure on the revenue side, there is still some pressure on the company's profit, and 2024Q3's net profit after deducting non-return to mother fell 70.5% year over year.

Optimistic about mid-term growth and maintaining the “gain” rating

Considering that consumer confidence is still insufficient, we expect the company's 2024-2026 revenue to be 11.51/12.6/13.25 billion yuan, with year-on-year growth rates of -5.8%/+9.5%/+5.2%, respectively, and net profit to mother of 0.5/0.73/0.83 billion yuan, respectively. The year-on-year growth rates are -29.7%/+47.1%/+13.2%, and EPS 0.4/0.6/0.7 yuan/share, respectively. As the company firmly promotes the development of multiple business formats and the transformation of traditional business formats, and the duty-free business continues to develop, we are optimistic about the company's mid-term growth and maintain an “gain” rating.

Risk warning: Economic growth is slowing; retail recovery falls short of expectations; tax exemption progress falls short of expected risk.