The company released its 2024 three-quarter report. In the third quarter of 2024, the company achieved revenue of 2.464 billion yuan, a year-on-year decrease of 14.61%; net profit to mother was 0.134 billion yuan, an increase of 2.53%; net profit after deducting non-return to mother was 0.039 billion yuan, a year-on-year decrease of 70.54%. Diluted earnings per share of $0.118, weighted average return on net assets of 0.675%.

Brief review and investment advice.

1. In the third quarter of 2024, revenue fell 14.61% year over year, and comprehensive gross margin fell 1.09pct to 38.29%.

In the first three quarters of 2024, the company achieved revenue of 8.5 billion yuan, a year-on-year decrease of 8.27%. Of these, 3Q achieved revenue of 2.464 billion yuan, a year-on-year decrease of 14.61%. The consolidated gross margin fell 0.98pct to 40.17% in the first three quarters, of which 3Q consolidated gross margin fell 1.09pct to 38.29%. In the first three quarters, the overall passenger flow of all business categories achieved a slight year-on-year increase.

(A) By business sector, 1-3Q24 department store revenue was 3.242 billion yuan, down 15.45% year on year; shopping center revenue was 2.254 billion yuan, down 1.58% year on year; outlet revenue was 1.65 billion yuan, up 4.37% year on year; specialty store revenue was 1.078 billion yuan, down 4.97% year on year; tax free revenue was 0.204 billion yuan, up 68.62% year on year.

(B) By region, 1-3Q24 revenue in South China was 0.312 billion yuan, up 13.64% year on year, mainly because new stores in the region were still in their infancy; revenue in Northeast China was 0.365 billion yuan, up 7.91% year on year, and sales at 2 Olay and 1 shopping center all showed good growth; East China revenue was 0.455 billion yuan, down 2.93% year on year; revenue from southwest China was 1.753 billion yuan, down 14.75% year on year, mainly due to a decline in department store revenue, a decrease of stores in Chongqing, and Market environment impact. Revenue in North China, Central China, and Northwest China was 4.578, 0.633, and 0.885 billion yuan respectively, down 12.96%, 11.02%, and 10.51% year-on-year respectively, mainly due to the impact of the market environment and the distribution of the company's business format.

(C) By category, retail sales of digital products increased by nearly 28%, entertainment and leisure increased by more than 20%, and sales of children's experience categories increased by nearly 15%. Consumption of sports products has gradually taken advantage of the market and has now become the company's largest sales category.

2. The cost rate increased by 2.63 pct during the third quarter of 2024. The company's expense ratio for the third quarter period was 31.57%, up 2.63 pct year on year; of these, the 3Q sales expense ratio increased 1.81 pct to 16.35% year on year; management expenses increased 1.77 pct year on year to 13.02% year on year; and the financial expense ratio decreased 0.95 pct to 2.19% year on year.

3. Net profit to mother increased 2.53% year over year in the third quarter of 2024, and net profit after deducting non-net profit decreased by 70.54% year on year. Net income from 3Q fair value changes was 62.65 million yuan, net investment income was 16.47 million yuan, and other income was 5.02 million yuan; total profit was 0.202 billion yuan, down 14.44% year on year; net profit to mother was 0.134 billion yuan, up 2.53% year on year, after deducting net profit not attributable to mother 0.039 billion yuan, down 70.54% year on year. The impact of non-recurring profit and loss was 0.063 billion yuan .

Maintain judgment on the company. Leading department store in the country, tax+duty-free two-wheel drive. As of 3Q24, the company has operated 79 large-scale retail stores, covering seven major economic regions across the country. It is one of the few department stores with an A-share nationwide layout and is still actively expanding stores, innovating in the direction of shopping centers and outlets; the duty-free business is progressing steadily, and two airport outbound duty-free shop projects have won bids, broadening duty-free business channels and diversifying business types.

Profit forecasting and valuation. The company's revenue for 2024-2026 is expected to be 11.1 billion yuan, 12.2 billion yuan, and 13.1 billion yuan, respectively, with year-on-year growth rates of -9.3%, 9.8%, and 7.6%, respectively, and net profit to mother of 0.54 billion yuan, 0.71 billion yuan, and 0.84 billion yuan, respectively. The year-on-year growth rates are -24.1%, 31.8%, and 18.8%, respectively. ① PE valuation method: Give 25-30 times PE in 2025, corresponding to a reasonable value range of 15.63 yuan to 18.75 yuan. ② PS valuation method: Give 1.5-1.7 times PS in 2025, corresponding to a reasonable value range of 16.09 yuan to 18.23 yuan. The company was comprehensively given a reasonable value range of 15.63 yuan to 18.75 yuan per share, maintaining the “superior to the market” rating.

Risk warning: The cultivation period for new stores is lengthened; the risk of competitive pressure; the development of duty-free business falls short of expectations, and the progress and results of taxable business transformation are lower than expected.