Description of the event

The company released its three-quarter report for 2024. In the first three quarters, the company achieved revenue of 9.05 billion yuan, a year-on-year decrease of 2.2%, and realized net profit to mother of 0.12 billion yuan, a year-on-year decrease of 47.3%. In the third quarter of a single quarter, the company achieved revenue of 2.93 billion yuan, a year-on-year decrease of 3.0%, and a net loss of 35.51 million yuan to mother. The profit for the same period last year was 9.93 million yuan.

Incident comments

Sales and revenue were relatively stable in the third quarter, and overall cost control was good, but the profit phase of buying 100 declined, causing losses to be converted back to mother. 1) In terms of sales, shopping malls, department stores, and supermarkets achieved sales of 3.7, 2.4, and 2.2 billion yuan respectively in the third quarter, with year-on-year changes of +2.8%, -12.8%, and -4.1%, respectively. Shopping malls grew relatively well, but overall sales fell 4.0% year on year due to weak consumer demand. 2) In terms of revenue, shopping malls, department stores, and supermarkets achieved revenue of 0.54, 0.45, and 1.91 billion yuan respectively in the third quarter, with year-on-year changes of +4.1%, -11.5%, and -2.3%, respectively. The total revenue fell 2.8% year on year.

Looking at the end of the third quarter, the company operated 41 shopping malls, 59 department stores, and 112 supermarkets. Compared with 2023Q3, there was a net increase of 1 with 100 purchases and 5 net supermarkets; the revenue of shopping malls, department stores, and supermarkets changed +0.3%, -10.7%, and -1.0% year-on-year, respectively. The department store business was under relative pressure, and the number of customer orders in the supermarket business increased slightly, but customer unit prices declined slightly due to low CPI. 3) In terms of total profit, the total profit of shopping malls, department stores, and supermarkets declined by 31.8%, 37.9%, and 3.3% year-on-year respectively in the third quarter. Profit from buying 100 was relatively under pressure. The decline in supermarket profits narrowed significantly compared to the 17% decline in the first half of the year. Looking at the company's overall dimensions, Q3's comprehensive gross margin was 35.4%, down 1.2 pct; Q3 sales/management/R&D/finance expenses were 9.4, 0.09, 0.02, and 0.01 billion yuan, respectively, with year-on-year changes of -6%, -7%, +3%, and -75%, respectively. The total four fees were 1.07 billion yuan, a decrease of 9% year on year, and expenses were well controlled. Overall, the company's sales and revenue side are relatively stable. Shopping malls, as an emerging business format the company is focusing on, have achieved relatively better growth, while the cost side is well controlled. However, profits fluctuated due to the transformation and upgrading of the shopping center business, brand renewal, new product introduction, and store space planning. Furthermore, the department store business was in a period of adjustment and optimization, which led to a phased change in net profit loss in the third quarter.

Empowered by digitalization, the company is steadily advancing the transformation of various business formats. During the reporting period, omni-channel traffic increased 8.8% year-on-year, and the number of digital members reached 50 million. The shopping center business is speeding up brand renewal, in particular increasing the introduction of new trend products such as trendy games, miscellaneous goods, and influencer restaurants, and actively using new media marketing. The department store industry dynamically adjusts the proportion of stores to sub-business, further promotes zero-supply cooperation, and steadily promotes the transformation into a community living center. The supermarket business has increased the transformation, adjustment, optimization and upgrading of products and organizations, comprehensively upgrading the SP @CE brand image, and reshaping products, experiences and services. Among them, the country's first SP @CE3 .0 was launched on September 6 at Bao'an Tianhong Shopping Center in Shenzhen. On the day of opening, sales increased 196% year-on-year and 121% month-on-month, laying a good foundation for starting the company's nationwide supermarket store upgrade and promotion.

Investment advice: Facing the pressure and challenges of the industry, the company firmly believes in the “two-wheel drive” development strategy of industrial digitalization and digital industrialization, and continues to promote the transformation and upgrading of various retail formats. The profit of the Buy100 business has fluctuated in stages. As the business gradually matures in the medium to long term, it is expected to release profit elasticity. EPS is expected to achieve 0.15, 0.17, and 0.21 yuan in 2024-2026, maintaining a “buy” rating.

Risk warning

1. Residents' income expectations are weak, affecting consumer demand;

2. The progress of the business format upgrade fell short of expectations.