Key points of investment:
The company announced its 2024 quarterly report, and the results were in line with expectations. According to the company announcement, 2024Q1 achieved operating revenue of 3.340 billion yuan, a year-on-year decrease of 1.3%. Net profit attributable to mother was 149 million yuan, a year-on-year decrease of 28.34%, and non-net profit deducted to mother was 127 million yuan, a year-on-year decrease of 26.07%. Mainly because the 23Q1 company closed Yichun Tianhong Shopping Center to confirm asset disposal income and other related expenses, net profit increased by about 64 million yuan. Excluding this one-time income, 24Q1 net profit to mother increased 3.47% year-on-year.
Continuously optimize the store network layout and promote the upgrading of the three major business formats. 24Q1 closed 4 independent supermarkets, continuously optimized the store structure, and reached 34 cities in 7 provinces/cities in Guangdong, Jiangxi, Hunan, Fujian, Jiangsu, Zhejiang, and Beijing, operating 41 shopping centers (including 4 franchisees), 59 department stores (including 1 franchise), and 112 supermarkets (including 25 independent supermarkets), with a total area of over 4.55 million square meters. In 24, the company will continue to upgrade the three major business formats of supermarkets, shopping centers and department stores, streamline supermarket products, integrate the supply chain to improve efficiency, focus on adjusting and upgrading 19 stores to buy 100 stores, build 9 benchmark stores for community living centers, and open 3-4 new shopping centers.
Omni-channel and multi-business formats are collaborating, and the digital industry business is developing rapidly. According to the company's announcement, 24Q1 achieved sales of 9.385 billion yuan in the three major business categories of purchasing 100 supermarkets, an increase of 0.63% over the previous year. By business type, comparable stores in the supermarket business achieved revenue of 2100 billion yuan, -1.65% year over year. Mainly affected by the decline in customer unit prices, the number of customer orders in comparable supermarkets increased by 2.62% year on year in 24Q1, and the customer unit price decreased 4.49% year on year. Comparable stores in the shopping center/department store business achieved revenue of 5.32/570 million yuan, +5.26/ -4.78% year-on-year. The company seizes important holidays such as the Spring Festival, Lantern Festival, and Women's Day to carry out various marketing activities, and achieved sales of 9.88 billion yuan and 1.1% year-on-year growth through omnichannel and multiple business formats. The shopping and upgrading business continues to advance transformation and upgrading, adapting to new consumer demand and changes in trends, comprehensively improving operating capacity, and continuous improvement in profitability. The total profit of comparable stores increased 120% year-on-year; the supermarket business accelerated supply chain optimization and adjustment, strengthened refined operations, and gradually showed results. The digital industry business is expanding rapidly, and the technology subsidiary Smart Digital Technology is vigorously promoting technological innovation and signing a number of new major customers.
Profit growth in the shopping center sector was strong, and cost control remained stable. The 24Q1 company achieved a gross profit margin of 36.95%, -0.11pct year-on-year. By business type, the gross profit margin of comparable stores in the supermarket business was 22.63%, -0.72pct year on year; total profit of shopping malls/department store comparable stores was +120.17%/-10.51% year-on-year. The 24Q1 company's expense ratio reached 31.09%, down 0.87pct year on year, and the sales/management/finance/R&D expense ratios were 27.21%/3.00%/0.30%/0.59%, respectively, and +0.05/+31/-1.22/ -0.00pct, respectively. Among them, the sharp decline in financial expenses was mainly due to an increase in interest income from large deposit certificates purchased by 24Q1 and a decrease in interest expenses confirmed for rental properties.
Maintain a “buy” rating. Tianhong continues to strengthen digital construction, build a high-quality supply chain, promote the transformation and upgrading of the three major business formats, and is optimistic about the long-term improvement in store operation capacity and digital industry business expansion brought about by the iteration of the company's business formats. Considering the intense competition in the offline retail industry and the continued adjustment and optimization of the company's stores, we lowered our profit forecast. The company's net profit for 24-26 is estimated to be 2.09/235/252 million yuan (2.58/2.89/3.06), respectively, corresponding to PE of 28/25/23 times, maintaining the “buy” rating.
Risk warning: Consumption recovery falls short of expectations, digital construction falls short of expectations, and store adjustments fall short of expectations.