Hongqi Chain(SZ:002697)2024-08-06 11:00Investment Rating - The report maintains an "Outperform" rating for the company, with a target price of RMB 6.20, reflecting a potential downside of 14% from the current stock price [4][10]. Core Insights - The company reported a revenue of RMB 5.186 billion for 1H24, representing a year-on-year growth of 3.67%, and a net profit attributable to shareholders of RMB 267 million, up 3.81% YoY [10]. - The company is focusing on store optimization, including adjusting product structures and upgrading store decor, with 202 old stores upgraded and 16 new stores opened in 1H24 [2][10]. - The report highlights a decrease in the overall gross profit margin (GPM) by 0.37 percentage points to 28.98% in 1H24, with a further decline in 2Q24 GPM to 28.12% [2][10]. Financial Performance Summary - 1H24 revenue was RMB 5.186 billion, up 3.67% YoY; net profit attributable to shareholders was RMB 267 million, up 3.81% YoY; diluted EPS was RMB 0.20; and ROE was 6.32% [10]. - The company’s core business net profit grew by 6.14% YoY, with a core business net profit margin of 4% [2][10]. - The investment profit from XWBank was RMB 59.90 million, while Gansu Hongqi Investment incurred a loss of RMB 0.54 million, leading to a total investment profit of RMB 59.36 million, down 4% YoY [2][10]. Revenue Breakdown - By category, revenue growth was noted in food (1.66%), tobacco and alcohol (9.02%), and daily necessities (1.33%), while other business revenues fell by 3.19% [2][10]. - By region, revenue growth was 4.11% in Chengdu urban areas, 4.69% in suburban counties, and 2.64% in secondary cities, with respective revenue contributions of 51.07%, 37.29%, and 4.05% [2][10]. Future Earnings Forecast - The company is projected to achieve net profits of RMB 578 million, RMB 545 million, and RMB 726 million for 2024-2026, with respective year-on-year growth rates of 3.1%, 11.6%, and 12.4% [4][10]. - The core business net profit is expected to be RMB 427 million, RMB 486 million, and RMB 559 million for the same period, with growth rates of 4.2%, 13.9%, and 14.9% YoY [4][10].