Core ideas:
The income of Shandong is growing steadily, and the incubation of new regions is a drag on the overall performance.
The company released 1Q19 results, with revenue of 3.59 billion yuan, up 16.9% over the same period last year; net profit of 97 million yuan, down 38.5% from the same period last year; and non-net profit of 69 million yuan, down 52.95% from the same period last year. From a regional point of view, the Shandong region achieved a revenue of 3.132 billion yuan, an increase of 1.87% over the same period last year; a net profit of 200 million yuan, an increase of 27.5% over the same period last year; and the East China region (Liqun era) achieved a revenue of 462 million yuan and a loss of 104 million yuan. In terms of business format, department stores achieved main income of 1.458 billion yuan, an increase of 3.22% over the same period last year; supermarkets achieved main income of 1.558 billion yuan, an increase of 31.24% over the same period last year, and it was estimated that the business of supermarkets in the former Shandong region fell 3.4% over the same period last year; and home appliances achieved main income of 332 million yuan, an increase of 9.06% over the same period last year. In terms of the number of stores, the company at the end of 1Q19 still has 87 stores (one for each switch).
The company's gross profit margin has increased steadily, and cross-regional expansion has greatly increased the rate of sales management expenses.
1Q19's comprehensive gross profit margin was 23.4%, up 1.69ppm from the same period last year; of this total, the gross profit margin of the main retail sector was 17.85%, up 3.72pp from the same period last year. The company's sales management expense rate was 17.66%, an increase of 4.05ppp over the same period last year, and the financial expense rate was 0.8%, an increase of 0.3pp over the same period last year. Taken together, 1Q19's net interest rate was 2.7%, down 2.3pp from a year earlier.
Profit forecast and investment advice
The company is rooted in Qingdao, radiates Shandong, and the basic market is solid. The acquisition of Rakuten stores will accelerate cross-regional expansion, rich brand resources and strong supply chain system will ensure the success rate of cross-regional expansion. Under the private mechanism, employees directly hold more than 30% of the shares in the company, and the incentives are in place. At the same time, the company plans to issue convertible bonds to raise 1.8 billion yuan for the construction of three commercial complexes and supply chains in Shandong. The company is expected to achieve a return net profit of 260 million yuan, 420 million yuan and 560 million yuan in 19-21 years. The compound growth rate of the company's return net profit in the next three years is expected to be 40%. The company will be given a 19-year 27X PE, corresponding to a PEG of 0.68, with a reasonable value of 8.13 yuan per share.
Risk hint: inventory price decline risk; competition aggravate risk; cross-regional operation risk.
