Jiajiayue announced 3Q24 results, with Q1-Q3 revenue of 14.13 billion yuan (yoy +1.8%) and net profit of 0.19 billion yuan (yoy -12.0%) to mother. Q3 achieved revenue of 4.76 billion yuan (yoy -0.5%) and net profit of 0.02 billion yuan (yoy -33.7%), mainly hampered by industry competition and weak CPI. The company's new business format layout continues to advance, which is expected to promote channel structure optimization and drive subsequent profitability improvements. Maintain an “Overweight” rating.

Due to weak demand and increased competition, the Q3 revenue side was under slight pressure

The company's revenue for the third quarter fell slightly by 0.5%, similar to that of the second quarter, mainly affected by weak CPI and fierce competition in the industry. By business type, the revenue of comprehensive supermarkets, community fresh food supermarkets, and rural supermarkets was +0.1%/+13.4%/-25.3% year-on-year respectively in the third quarter. The latter two fluctuated greatly mainly because some stores took into account changes in the business district and category composition, and the adjustment from rural supermarkets to community fresh food supermarkets. In terms of exhibition stores, the company added 13/30 new direct-run stores and franchise stores respectively in the third quarter. At the same time, it also sorted out the store network, and terminated some store contracts, and closed 36 stores.

The decline in gross margin narrowed month-on-month, and cost control was steady

On the gross profit side, the company's Q3 gross profit margin was 22.7%, a slight decrease of 0.1 pct from the previous year. The decline was steadily narrower than H1, and the impact of industry price competition was marginally mitigated. On the cost side, the company's fee control remained steady. The Q3 management expense ratio remained flat at 1.9%, and the sales expense ratio increased slightly by 0.5 pct over the same period last year. We expect it to be mainly affected by factors such as upfront costs of cultivating new stores and optimization of closing stores since 2H23, while comparable store fee rates are expected to continue the optimization trend. Under the combined influence, the company's Q3 net profit margin was 0.4%, a slight decrease of 0.1 pct from the previous year.

The layout of the new business format continues to advance, and share repurchases increase shareholder returns

Although downstream consumer demand has yet to be repaired in the short term, company reforms continue to advance. The new business formats Yueji Snack Store and Haohuixing maintained a relatively fast pace of exhibition, with a net increase of 21 snack stores in Q3. The company is also strengthening product source development, cooperating with suppliers to customize premium products, and strengthening logistics linkages between central warehouses and regional warehouses. Supply chain efficiency is expected to better empower stores. In September, the company announced the second share repurchase plan. It plans to use 0.1-0.2 billion yuan of its own capital to repurchase, which is expected to increase shareholder returns. Follow the company's new business format layout and operational optimization progress.

Profit forecasting and valuation

Maintain the 2024-26 net profit forecast of 0.24/0.29/0.42 billion yuan. Referring to the unanimous expectations of 19xPE in 25 years, considering that the new business format of the company's discount chain is still growing rapidly, the target price is 12 yuan for 25 years.

Risk warning: Consumption recovery is weaker than expected, supply is faster than expected, and the impact of imported paper is greater than expected.