Report name:Suning Tesco (002024)—Performance is under pressure, and operating cash flow is positive
Researchers: Ning Fujie, Ding Zhechuan, Xu Xilian
Report Type: Company Research*Review Report
Report Date: 20210201
Industry/Subsector: Retail
Company Name and Code: Suning Tesco (002024)
Investment advice: Highly recommended - A
[Summary of contents]
Due to the impact of the epidemic, offline stores were under pressure, and there was some recovery in December. In order to cope with the impact of the epidemic on offline store operations, the company has accelerated the optimization of store structures and strengthened online and offline links, and the store partner business model has gradually matured. As the market picked up and promotion was strengthened, the year-on-year sales revenue growth rate of the home appliance 3C lifestyle specialty stores rebounded to 5.37% in December.
With the independent development strategy of Yunwang Wandian, GMV and the number of active buyers are growing rapidly. The company increased online business subsidies in 2020Q4, significantly increasing sales scale and user activity. The product sales scale of the 2020 Q4 Cloud Network Wandian platform increased by 33.61% year on year, of which the company's self-operated product sales scale increased by 45.28% year on year. Active buyers in 2020Q4 increased 52% year on year, and the number of monthly active users of Suning Tesco increased 68% year on year in December. In the future, after the financing of Yunwang Wandian is completed, the shareholding ratio of listed companies will gradually decline, and losses from mergers will also decrease.
Accelerate the development of the third and fourth tier markets, and maintain rapid growth in the retail cloud business. In 2020Q4, 769 new retail cloud franchise stores were opened, and 3,201 new stores were opened throughout 2020. The company closely grasped promotional activities such as the peak air conditioning season and the 818 shopping festival. While gradually recovering offline, the company continued to accelerate community and social marketing through promotion, shopping, and live streaming to drive sales growth; increase its support for the development of open platforms; and launch a series of support policies. The company's leading edge in the third and fourth level market channels is gradually reflected, and the number of cooperative brands is steadily increasing, driving the scale of the retail cloud business to maintain rapid growth. The annual sales scale is expected to increase by more than 100% year on year and achieve profit.
Investment advice: The company's short-term performance is under pressure, but if employee shareholding expenses and various expenses arising from the company's investment in mergers and acquisitions are not taken into account, the company's losses in 2020 decreased compared to 2019. At the same time, the company's overall operations improved through positive cash flow. With the independent development of Yunwang Wandian, the company is focusing more on the main retail business, and operating profit is expected to continue to increase. We expect the company to achieve net profit of 1,902/2,734 billion yuan from 2021 to 2022, corresponding to PE 32.4x/22.5x, and maintain the “Highly Recommended A” rating.
Risk warning: The impact of the pandemic has exceeded expectations, and the development of online business has fallen short of expectations.
[End of summary]