1Q24 results are in line with our expectations
The company announced 2023 results: revenue of 78.64 billion yuan, down 12.7%; net loss to mother of 1.33 billion yuan, a year-on-year loss of 1.43 billion yuan, which is basically in line with the performance forecast and lower than our expectations, mainly due to increased competition in the industry and higher impairment losses; net loss of 1.98 billion yuan, a year-on-year decrease of 590 million yuan.
The company also announced 1Q24 results, with revenue of 21.67 billion yuan, a decrease of 9.0%; net profit to mother was 740 million yuan, an increase of 4.6%, in line with our expectations.
Development trends
1. The revenue side is affected by industry competition and channel sorting, etc., and omni-channel integration is progressing steadily. The company's revenue fell 12.7% in '23, with Q1-Q4 falling 12.6%/15.2%/9.5%/13.7%, respectively, and 1Q24 revenue falling 9.0%. We expect mainly due to weak consumer demand, increased industry competition, and the company's initiative to close stores that continued to lose money. By the end of '23, the number of stores was 1,000, a net decrease of 33 over the previous year. By channel, online business revenue grew steadily by 1.0% to RMB 16.1 billion, with revenue accounting for 2.8ppt to 20.5%. Among them, the self-operated app “Yonghui Life” accounted for 52.0% of online revenue, an average monthly repurchase rate of 50%, and the number of registered members also increased 13.9% to 115 million households; during the 1Q24 period, the company's online business revenue also increased 2.0% to 4.1 billion yuan, and the revenue share increased 2.0ppt to 18.9%. Omni-channel integration gradually deepened.
2. The gross profit side has been repaired, and non-recurring losses are dragging down profits. Gross margin increased by 1.6ppt to 21.2% in '23, mainly due to improved product structure and cost adjustments, 1Q24 gross margin remained flat at 22.9% year on year.
On the cost side, the fee rate for the 2023/1Q24 period was +1.0pp/ -0.2ppt to 23.2%/19.4% year-on-year.
In addition, long-term equity investments were depreciated by $440 million over 23 years, and impairment losses related to store closures were worth $90 million. Under the combined impact, the net interest rate due to mother increased by 1.4ppt/0.4ppt to -1.7%/3.4% in 2023/1Q24, respectively.
3. Focus on the company's business transformation and digital construction results. 1) Store optimization and upgrading: The company plans to customize and transform the store with “one store, one discussion”, create an offline “fireworks cafeteria”, and upgrade the store layout; through its own brand to enhance the differentiated competitiveness of products, the sales volume of its own brand also increased by 8.3% in '23, and the sales share increased to 5%. 2) Digital construction: The company basically completed the digital infrastructure of stores and supply chains in 23, and the efficiency of introducing new products increased by 50% in '23; at the level of store digitalization, the company's automation and process increased picking efficiency by an average of 20% in '23, and the average labor cost of all warehouse receipts decreased by 9.3%. We expect to drive cost optimization and focus on the results of business transformation and upgrading.
Profit forecasting and valuation
Considering weak consumer demand and continued intense market competition, the 2024 revenue forecast was lowered by 10% to 73.1 billion yuan, considering the company's store sorting and cost reduction and efficiency measures, the 2024 net profit forecast remained unchanged for the time being, and a net profit forecast of 150 million yuan was introduced. The current stock price corresponds to 0.3/0.3 times P/S for 2024/25. Maintaining an outperforming industry rating, taking into account profit forecast adjustments and changes in market risk appetite, the target price was lowered by 18% to 3.2 yuan, corresponding to 0.4/0.4 times P/S in 2024/25, with 40% upward space.
risks
Competition in the industry has intensified, the progress of business transformation has fallen short of expectations, and the macro environment is under pressure.