Key points of investment
Incident: On April 7, 2023, the company disclosed instructions for issuing convertible corporate bonds to unspecified targets. The company expects to raise no more than RMB 1,039 million. The capital raised will be invested in retail terminal construction projects of 764 million yuan and intelligent logistics center construction projects of 275 million yuan.
The implementation of convertible bond issuance will help the company improve the store layout network and integrate the supply chain, thereby promoting an increase in market share and enhancing operational efficiency.
1) Improve the national layout strategy to further seize market share. By the end of September 2022, the company had 504 direct stores, and plans to build 169 offline stores in 22 provinces (cities) including Jiangsu, Anhui, Zhejiang, Sichuan, Hunan, and Shandong over the next three years. As the company actively explores empty markets while encrypting existing urban networks, the combination of industry concentration continues to benefit, and the company's market share can be expected to increase.
2) Digitize stores to enhance customer experience and strengthen brand competitiveness. The company plans to invest in voice AI cloud recognition, facial AI cloud recognition, smart store shelves, etc. in pilot smart stores to build digital and intelligent consumption scenarios to achieve full-scenario services. Digital support empowers the single-customer economic system, and the improvement of integrated social consumption scenarios continues to strengthen customer stickiness and tap incremental customers.
3) Building intelligent logistics centers, optimizing and integrating the supply chain, and continuously empowering cost reduction and efficiency. The company plans to rent new front warehouses (SDC) in Jinan, Shanghai, and Guangzhou, and rent new downtown warehouses (FDC) in 21 cities including Wuhan, Xi'an, Tianjin, and Chengdu; while increasing the leasing area of 5 regional warehouses (RDC) including Chengdu, Wuhan, Tianjin, Foshan, Nanjing, and urban warehouses (FDC) in 14 cities including Yancheng, Wuxi, Huai'an, Yangzhou, and Zhengzhou. The improvement of the warehousing system will improve the company's distribution, operation efficiency and management capabilities, meet growing customer needs, and continuously optimize profitability.
Profit forecasting and valuation
The company is a leading enterprise in the field of maternal and child retail. The competitive pattern of the industry continues to be optimized, combined with a unique big store model that has been steadily upgraded, and its market share continues to increase. At the same time, it has an advantage of scale, and has perfected the digital supply chain and deeply bundled membership stickiness, is deeply involved in the maternal and child retail circuit, and is driven by service businesses, and has long-term investment value. The company's revenue is expected to reach 78.75/ 98.37/ 13.733 billion yuan respectively in 22/23/24, an increase of -12.98% /24.91%/39.61%; net profit to the mother reached 2.14/ 3.13/ 497 million yuan respectively, an increase of 6.12% /46.39%/58.69%. The current market capitalization corresponding to PE is 60.13/ 41.08/ 25.89 X, maintaining the “buy” rating.
Risk warning
The birth rate has declined at an accelerated pace; the recovery in offline consumption has fallen short of expectations; competition in the industry has intensified; and the results of business development have fallen short of expectations.