Core views
Benefiting from the merger of Youyi E-commerce in February, the company's operating income and net profit increased 80.66% and 67.23% year-on-year respectively in the first three quarters, net profit after deduction increased 59.78% year-on-year, operating income and net profit for the third quarter increased 86.70% and 78.10% year-on-year respectively, and profit growth increased over the first half of the year. The company expects the change in net profit to the mother in 2018 to be between 50% and 80%.
From the perspective of subsidiaries, Global Tesco's revenue and net profit growth rates in the first three quarters were 28.80% and 26.13% respectively. Among them, export business revenue increased 39.69% year-on-year; Patson's revenue and net profit increased 58.92% and 40.77% respectively; and Youyi E-commerce achieved net profit of 210 million yuan.
The company's gross margin fell 9.88pct in the first three quarters (mainly the lower gross margin of the newly merged Youyi e-commerce maternal and child products), and the expense ratio fell 8.98 pct during the period. Among them, the sales expense ratio fell 7.89 pct, the management expense ratio fell 1.04 pct, and the financial expense ratio remained basically the same. At the end of the third quarter, the company's inventory increased by 5.95% compared to the beginning of the year, accounts receivable and notes receivable increased by 160.05% from the beginning of the year. Net cash from the company's operating activities improved markedly in the third quarter. Only the best e-commerce had a net outflow. Global Tesco and Patson achieved net cash inflows from operating activities of 197 million yuan and 33.17 million yuan respectively.
The core management is fully motivated. In September, the company announced that Yang Jianxin, the actual controller, and his wife entrusted the disposable voting rights corresponding to 6.94% of their shares to Xu Jiadong, and Xu Jiadong became the actual controller of the company. At the same time, Yang Jianxin and his wife planned to reduce 7.04% of the company's shares to a third party, and Xu Jiadong and his designated third party would have priority transfer rights. In July, the company launched the fifth phase of the stock option incentive plan, which granted 70 million options to 22 executives and core cadres. The conditions for exercising the rights were that the company's net profit for 18-20 years was not less than 1 billion, 1.3 billion, and 1.5 billion, respectively. In October, the company issued an initiative to employees, promising that employees who purchased company shares between October 19 and November 18 and did not leave the company for 2 years. Those earning less than 8% in the first 12 months and less than 12% in the second 12 months would be covered by the initiator. Through a series of equity transfers, the company's shareholder structure has been optimized, the incentive mechanism has been fully released, motivation for work has been mobilized, the interests of the company's employees are bound, and the efficiency of the company's operation and management has been improved.
We are optimistic about the future development trend of the company becoming stronger among the strongest players in the B2C business field. Cross-border e-commerce is a typical capital-driven industry. The capital scale advantage brought about by the company's earliest listing in the industry will drive its endogenous growth rate to continue to lead). At the same time, the company's open mergers and acquisitions and outbound growth brought about by full incentives are also continuing to grow, driving the company's operating scale and performance to continue to rise. After 17 years of integration and consolidation of the company's business, its refinement capabilities in big data operation, supply chain management, and online marketing promotion have continued to improve.
Financial forecasting and investment advice
According to the three-quarter report and the general trade environment, Global Tesco's sales growth rate for the next three years was lowered. The company's earnings per share in 2018-2020 are expected to be 0.79 yuan, 1.05 yuan, and 1.38 yuan respectively (the original forecast was 0.79 yuan, 1.16 yuan, and 1.64 yuan respectively). Referring to the average valuation of comparable companies, the company was given a PE valuation of 17 times over 18 years, corresponding to the target price of 13.43 yuan, maintaining the “buy” rating.
Risk warning: Risks such as Sino-US trade policies, exchange rate fluctuations, new business development, and major shareholder pledges.
