Hongqi Chain (002697) Interim Review: Profitability of Main Business Continues to Improve, New Bank Contributes Incremental Income

Hongqi Chain (002697) Interim Review: Profitability of Main Business Continues to Improve, New Bank Contributes Incremental Income
The profitability of the main business continued to improve, and Xinwang Bank contributed incremental income. The company released a semi-annual report and achieved revenue of 38 in 1H19.29 ppm, a five-year increase of 5.89%; net profit attributable to mother 2.370,000 yuan, an increase of 52 in ten years.93%; if the impact of Xinwang Bank is excluded (according to the company’s semi-annual report, the contribution in the first half of the year is about 0.Investment income of 70,000 yuan), it is estimated that the net profit of the main business increased by about 25 in the first half of the year.2%.In terms of quarters, 2Q19 revenue increased by 9 per year.22%, an increase of 6 from the previous month.At 53pp, the effect of the company’s store optimization and adjustment gradually appeared, and at the same time, the company’s exhibition stores accelerated, and 168 new stores opened in the first half of the year (only 146 opened in 2018).As of the end of 1H19, the company had 2,958 stores, a net increase of 141 earlier.By category, food income was 19.10,000 yuan, an increase of 7 in ten years.64%, contributing nearly 50% of the source of income; tobacco and liquor and department store revenue accounted for 26 respectively.4% and 15.7%.In terms of different regions, Chengdu’s urban area realized 21 income.3 ‰, an increase of 6 in ten years.14% and 55% of the revenue.6%; the proportion of income in suburban counties and secondary cities is 32.7% and 3.46%. The store optimization and upgrading effect was remarkable, and the gross profit margin and net profit margin steadily increased the company’s comprehensive gross profit margin in 1H19 to 30.22%, increase by 1 every year.7 pp, mainly due to the optimization of commodity structure.1H19 sales management fee subsidy 24.77%, increasing by 0 every year.58 pp, mainly due to the rapid growth of store operating expenses; 0 for financial expenses.09%, a reduction of 0 per year.04 pp due to increased interest income.The net interest rate for 1H19 is 6.18%, a year up.72 pp. Profit forecast and investment advice The company insists on expanding the barriers to competition with “goods + services”, the brand has gained popularity, and relying on dense offline outlets, it has launched more than 60 convenient value-added services such as lottery 杭州夜网 and utility bill collection.In the future, the company will continue to carry out store encryption, combining fresh food, food and other categories to enhance its customer acquisition capabilities, and merge with Xinwang Bank to contribute incremental income. It is expected to return to its mother’s net profit in 2019-2021.01/4.79/5.USD 6.5 billion, an annual increase of 24.3% / 19.4% / 18.0%, referring to the estimated situation of comparable retail leaders, giving the company about 19xPE for 19 years, corresponding to a reasonable value of 7.08 yuan / share, maintaining the “overweight” rating. Risk warning: store expansion progress target; Yonghui’s integration of the company’s stores is not up to expectations; the store product structure optimization progress is slow; rents, labor costs increase, and fee control effects are not up to expectations.