Investment Rating - The report maintains a Buy rating for the company with a target price of HKD 2.03, representing a 34.6% upside from the current price of HKD 1.51 [2][3] Core Views - The company's fruit retail business is under pressure, with a 11.1% YoY decline in revenue and a 66.1% YoY drop in net profit in 1H24 [2] - Direct sales business continues to grow rapidly, with domestic and overseas direct sales increasing by 30.2% and 29.4% YoY, respectively, driven by expanded market coverage and partnerships [2] - The company's store count remains stable at 6,025 as of June 30, 2024, with a net increase of 67 stores YoY [2] - The company has implemented a new strategy focusing on becoming a high-quality fruit expert and leader, which has shown initial success with 42 proprietary fruit brands and a 16% share of total retail sales [2] - The report forecasts net profits of RMB 1.9/2.8/3.6 billion for 2024-2026, driven by strategic adjustments and growth in direct sales and overseas C-end business [2] Financial Performance - Revenue is expected to decline by 11.4% YoY in 2024 to RMB 10,095.6 million, followed by a 4.4% increase in 2025 and a 6.5% increase in 2026 [1][6] - Net profit attributable to shareholders is projected to drop by 46.3% YoY in 2024 to RMB 194.1 million, with a recovery of 43.2% YoY in 2025 and 27.9% YoY in 2026 [1][6] - Basic EPS is forecasted to decrease to 12.33 RMB cents in 2024, recovering to 17.65 RMB cents in 2025 and 22.58 RMB cents in 2026 [1][6] - The P/E ratio is expected to rise to 12.2x in 2024, then decline to 8.6x in 2025 and 6.7x in 2026 [1][6] Business Segments - Fruit and other food sales accounted for RMB 5.44 billion in 1H24, down 11.1% YoY, while other income grew by 72.1% YoY to RMB 50 million [2] - Franchise fees and franchise income declined by 31.8% YoY to RMB 70 million, and membership income dropped by 19.9% YoY to RMB 40 million [2] - Online channel revenue fell by 61.1% YoY to RMB 60 million, reflecting challenges in the retail environment [2] Strategic Initiatives - The company has expanded its supply chain efficiency and 2B market share through the acquisition of Shenzhen Ban Guo, targeting small and medium-sized fruit suppliers [2] - The C-end overseas expansion is expected to break the store opening ceiling, with the company announcing its official entry into overseas markets in September 2024 [2] - The company's proprietary fruit brands now account for 16% of total retail sales, up 2 percentage points YoY, with 5 new brands launched in 1H24 [2] - Gift sales contributed 13.0% of total sales in 1H24, up 2.4 percentage points from 2023, driven by holiday promotions [2] Industry Comparison - The company's P/E ratio of 6.0x for 2024 is lower than the simple average of 30.3x for the retail industry, indicating potential undervaluation [5] - The company's CAGR for 2024-2026 is projected at 8.4%, lower than the 23.1% average for the retail industry but higher than some peers like Tianhong Digital Commerce (9.6%) [5] - The company's PEG ratio of 1.1x for 2024 is in line with the industry average, suggesting balanced growth and valuation [5]
百果园集团：水果零售业务承压，直销业务持续高增