Event

The company released its 2021 annual report, with revenue of 6.905 billion yuan, down 13.00% from the same period last year, and net profit of 641 million yuan, an increase of 103.32% over the same period last year, with basic earnings per share of 0.72 yuan.

Revenue has dropped slightly as a result of divesting the car sales business

The main reason for the decline in revenue in 2021 is the sale of car sales and services businesses, which account for a large proportion of revenue.

In 2020, the revenue of automobile sales and service business reached 6.879 billion yuan, accounting for 86.68% of the total revenue, but as the traditional automobile sales industry entered an era of stock competition and low growth, in order to concentrate resources to promote transformation and development, in September 2021, the company transferred 51% of Dongfang Automobile and New era Automobile to the controlling shareholder, and divested the automobile sales and service business. In 2021, the revenue of automobile sales and service business reached 4.658 billion yuan (- 32.29%).

Strengthen the main retail business and expand the medical business

Retail business: (1) according to the changes of consumers, Greater Oriental Department Store actively adjusts its positioning, laying out high-end cosmetics, light luxury watches and fashion brands to improve the efficiency of the floor; at the same time, strengthen marketing and promotion, incubate young customers, and enhance interactive experience. Enhance consumer stickiness. (2) Baiye supermarket promotes the transformation of supermarket business, constantly adjusts the store verification model; for fresh and strengthened stores in the community, improve the selection ability, select high-quality suppliers, strengthen cooperation with third-party logistics, and improve distribution efficiency. In 2021, the revenue of commercial retail business was 758 million yuan (+ 21.25%). (3) the impact of the epidemic weakens, superimposed Sanfengqiao continues to develop new, speed up the layout of chain stores, launch operation manual enabling franchisees, launch light restaurants to tap the consumption potential of young consumers, and achieve revenue of 195 million yuan (+ 17.25%) for food and catering business in 2021.

Medical business: through the holding subsidiary "Shanghai Junyao Medical", the company acquired a 51% stake in "Shuyang Central Hospital" in June, 40.6667% in "Jangao Pediatrics" in August, and 60% in "Yahn Health" in October. Gradually cultivate medical and health business as a new performance growth point, forming a "commercial retail + medical health" dual-main business strategic layout. In 2021, the operation of the three medical projects was sound, with a total revenue of 1.076 billion yuan.

The proportion of the main retail business with high gross margin increases, and the profitability is enhanced.

The gross profit margin in 2021 was 14.83%, an increase in 1.87pct compared with the same period last year, mainly because the company spun off the car sales and service business with low gross margin in September 2021 (the gross margin in 2021 was 7.76%), resulting in an increase in the commercial retail business with high gross margin (40.33% in 2021) and the food & catering business (42.17% in 2021). In terms of expense rate, due to the disposal of assets and the expansion of medical business, the sales expense rate and management expense rate increased by 0.13pct and 0.89pct to 4.74% and 6.12% respectively in 2021, and the financial expense rate increased by 0.19pct to 0.51% in 2021 due to changes in lease standards. The net interest rate in 2021 was 9.71%, an increase in 5.73pct compared with the same period last year, mainly due to the non-recurrent profit and loss of about 490 million yuan brought about by the company's disposal of auto sales business.

Investment suggestion

In the short term, with the improvement of the epidemic, the commercial retail and food and catering sectors are expected to release performance flexibility; in the long run, the light luxury industry has broad market space, the company continues to adjust and upgrade to improve the efficiency of the flat, and the retail department store business is expected to achieve steady growth. Under the catalysis of the epidemic, fresh distribution and convenience store industry ushered in new development opportunities. The company opened fresh and enhanced stores and won 7-Eleven Hubei management right to explore and join the chain expansion model, which is expected to further strengthen the main retail business; the company acquires Jiangao Medical, Shuyang Central Hospital and Ya'en Health, and cuts into the field of health care, multi-track linkage empowerment, which is expected to become a new performance growth point. We estimate that the company's EPS in 2022-2024 will be 0.26,0.30,0.33 yuan per share respectively, and the corresponding share price PE will be 23,20,18 times respectively, maintaining a "buy" rating.

Risk hint

The epidemic situation in some areas is repeated; the competition in the fresh distribution industry is fierce; the expansion of 7-Eleven stores is not as expected; the cultivation of the medical sector is not as expected.