Introduction to this report:

The company focuses on continuous upgrading of the main business, with obvious profit improvements and an increase in the speed of store expansion; actively exploring the live streaming business to accelerate the process of online and offline integration; and adding support from Sichuan businessmen, which is expected to drive the company's continued growth.

Key points of investment:

Maintain an increase in holdings. Considering the continuous upgrading of stores, maintain the company's 2024/25 EPS of 0.43/0.46 yuan, respectively, and add 0.50 yuan of EPS in 2026, giving 2024 a valuation of 17xPE higher than the industry average, maintaining a target price of 7.24 yuan, and maintaining the “gain” rating.

Performance summary: In 2023, we achieved operating income of 10.133 million/ +1.12%, net profit attributable to mother of 561 million yuan/ +15.53%, net profit of 490 million/ +9.26% after deducting non-return net profit. Looking at a single quarter, Q4 achieved operating income of 2,492 million/ +1.83%, net profit attributable to mother of 154 million/ +19.82%, and net profit without return to mother of 103 million/ -8.19%.

Continue to upgrade store files and continuously improve the consumer shopping experience. The company focuses on its main business to continuously improve quality and efficiency. Store upgrades were also promoted through various methods such as adapting to local conditions, adjusting the store product structure according to the time, improving the decoration level, and changing the type of store. 279 old stores were upgraded and renovated during the reporting period. As of December 31, 2023, the company had 3,639 stores.

In addition, use the advantages of store layout to create a convenient lifestyle in 5 minutes to the store, 5 minutes to shop, and 5 minutes to return home to enhance the shopping experience and increase customer stickiness.

Online and offline linkages continue to increase, and investment returns have increased significantly. On the basis of focusing on offline store management, we actively explore the live streaming business, strengthen cooperation with other online platforms through the integration of live streaming promotion with offline stores, and achieve online and offline linkage and complementarity to attract many consumers. It achieved an investment income of 154 million/ +46.89%, mainly because Xinwang Bank focused on improving the quality and efficiency of financial services and achieved a significant increase in operating efficiency.

Risk warning: Competition intensifies, store expansion falls short of expectations; uncertainty about return on investment.