2020 performance is in line with our expectations

The company announced 2020 results: revenue 26.331 billion yuan, an increase of 1.8% over the same period last year; return to the mother net profit of-319 million yuan, the range of loss narrowed, corresponding to a loss of 0.29 yuan per share, basically in line with our expectations. In half a year, 1H/2H revenue is + 4.1% and 0.6% respectively compared with the same period last year. The company actively promotes the transformation and upgrading of the business format, achieving positive income growth and narrowing net profit loss in the same period.

Development trend

1. Revenue is + 1.8% compared with the same period last year, mainly benefiting from the rapid optimization of category structure during the epidemic in the first half of the year, ensuring the supply of commodities for people's livelihood and effectively controlling prices, so as to attract passenger flow. In terms of business formats: 1) large-scale comprehensive supermarkets achieved revenue of 15.026 billion, year-on-year + 0.3%, same-store decreased 5.82%, the company continued to upgrade large-scale comprehensive business format, digital operation led the development of online channels; 2) supermarkets achieved revenue of 9.572 billion yuan, year-on-year + 6.8%, same-store growth of 4.0%, the company continues to optimize existing categories and brands on the basis of building community fresh supermarkets, and is committed to improving the efficiency of the floor. 3) the revenue of convenience stores was 1.577 billion yuan,-13.8% compared with the same period last year, and the same store decreased by 0.41%, mainly due to the epidemic situation. In terms of exhibition stores, based on the core region of the Yangtze River Delta, the company continues to optimize the quality of its outlets, resulting in a net decrease of 1 large-scale comprehensive supermarket stores throughout the year; a net increase of 113 supermarket outlets, including a net increase of 43 direct stores and a net increase of 70 franchise stores; a net decrease of 272 convenience store outlets, and we expect that the adjustment of convenience store format is coming to an end.

2. The profitability is improved and the loss is narrowed. The gross profit margin decreased slightly by 0.2 ppt to 13.4%, mainly due to the increase in the proportion of fresh and fast consumer goods with low gross margin during the epidemic.

From the cost point of view, the sales expense rate decreased from 1.3ppt to 17.1% compared with the same period last year, mainly due to the effective control of personnel costs during the epidemic; the management expense rate slightly increased to 3.3% from the same period last year; and other operating expenses rose 0.7ppt to 1.2% from the same period last year, mainly due to the closure losses of some outlets due to the strategic adjustment of convenience stores and large-scale comprehensive supermarkets. Under the combined influence, the net loss rate narrowed 0.25ppt to-1.2% compared with the same period last year, and the loss narrowed somewhat.

3. Pay attention to the optimization and upgrading effect of the company's business format in the follow-up. 1) digitization: continue to promote organizational change and process reengineering, promote the partnership system, and strengthen digital operation; 2) supply chain:

On the one hand, we will continue to optimize the fresh supply chain and strengthen direct mining at the source. On the other hand, enhance the proportion of self-owned brands in core categories to form differentiated competition; 3) Global sales: promote global category management, rely on the advantages of store outlets, enhance home service experience, and expand new business areas such as community group buying. At the same time, pay attention to the flow operation, increase the intensity of membership services, and create a closed-circuit ecosystem. Pay attention to the effect of the company's business adjustment and change.

Profit forecast and valuation

Maintain a net loss of 90 million yuan in 2021 and introduce a net profit of 20 million yuan in 2022. The current share price corresponds to 0.04 times 2021 pound 0.04 pound S in 2022. Maintain the outperform industry rating and maintain the target price of 1.45 yuan, corresponding to 2021, 2022, 0.05, 0.05, Pmax S, which has 24% upside compared to the current stock price.

Risk

The competition in the industry intensifies; the effect of format adjustment and upgrading is not as good as expected.