The company's recent situation
Recently, we attended Baiguoyuan Golden 10-Year Strategy Conference. At the conference, the company announced that its strategic direction was upgraded to “High Quality Fruit Experts and Leaders”, determined the development planning goals for the four major business groups, and formulated three “three-year plans” to achieve them. After the meeting, we also had detailed exchanges with management. Additionally, the company announced a 634 million yuan repurchase plan on January 11.
reviews
1. The ten-year strategic direction is clear, and the overall target is 100 billion yuan GMV. The strategic direction of the company's upgrade is to “be an expert and leader in high-quality fruit”, using “experts” to distinguish between comprehensive e-commerce and supermarket stores, and using “leaders” to distinguish small regional chains. We believe that the company is expected to further focus on brand advantages and high quality and price ratio positioning. The company plans to achieve 100 billion yuan GMV by 2032, with a market share of more than 10%. By business group: 1) The target number of stores in the retail business group exceeds 10,000, with terminal retail sales exceeding 50 billion yuan, increasing the share of signature fruit to 40%; 2) The ToB business group's self-operated business sales volume exceeds 20 billion yuan, strengthening individual products, and contributing to the rapid growth of the Bangguo platform's asset-light model; 3) The category business group will invest 200+ industrial chain companies, increasing the number of category brands to 100+; 4) The international business group strives to exceed 10 billion yuan and open up global membership in due course Store breakthrough 500 houses.
2. Focusing on the three major battles in 2024, we expect short-term results or pressure. 1) In terms of strategic renewal, the company plans to complete the full renewal of 6000+ stores within 3 months and update brand positioning and content in all channels; 2) in terms of signature fruits, the company will adopt innovative forms such as live streaming of production, and the terminal will further highlight; 3) In terms of gifts, the company plans to jointly release high-end gift boxes with designers to continue to develop in conjunction with the holiday and souvenir scene. However, considering that store decoration is mainly invested by the company and that a spokesperson will be used for the first time, we expect the pressure on the cost side to increase, while operating efficiency is expected to remain relatively stable.
3. The 634 million yuan repurchase plan was announced, demonstrating confidence in long-term development. The company announced on January 11 that it plans to use up to 634 million yuan to repurchase no more than 118 million H shares (about 10% of the total number of H shares issued), and the repurchased shares will be cancelled in due course; in addition, according to the rules, the actual repurchase price will not exceed 5% of the average closing price for the first five trading days of each repurchase. We believe that the launch of the buyback plan immediately after the strategy was released demonstrated management's confidence in the company's long-term space and growth prospects, and demonstrated its ability to maintain sufficient cash flow and a steady financial position during the strategic upgrade period.
Profit forecasting and valuation
Considering the company's 2H23 co-store pressure is high and net store opening has slowed down, we lowered our 2023 adjusted net profit forecast by 12% to 350 million yuan; while the strategic upgrade put some short-term pressure on the cost side, we lowered the 2024 adjusted net profit forecast by 20% to 400 million yuan. Adjusted net profit of 490 million yuan was introduced for the first time, and the current price corresponds to 20/16 times P/E in 2024/25. Based on profit forecast adjustments, the target price was lowered by 13% to HK$6.5, corresponding to 22/18 times P/E in 2024/25, with 10% upside.
risks
Category expansion and channel expansion fell short of expectations; food quality and safety risks; fruit price fluctuation risks; franchise store management risks.