Suning Tesco (002024): Smart retail enters the era of ten thousand stores, omni-channel, multi-format expansion, and the scale effect of traffic entry will gradually become apparent

Suning Tesco (002024): Smart retail enters the era of ten thousand stores, omni-channel, multi-format expansion, and the scale effect of traffic entry will gradually become apparent
Investment Highlights Event: Suning released its 2018 annual report and achieved a sales volume of 3,367 in 2018.570,000 yuan, an increase of 38 in ten years.39%, including online sales of 2,083.54 ppm, a 64-year increase of 64.45%.In 2018, it achieved operating income of 2,449.57 trillion, +30 a decade ago.35%, the net profit attributable to the parent company is 133.28 ppm, an increase of 216 in ten years.238%.The consolidated gross profit margin in 2018 increased by 0 compared with the same period last year.91%.The reported company strengthened the optimization and upgrade of the store structure. The same-store growth rate was stable. The 3C specialty appliance stores / Suning Tesco direct-operated stores / Red 厦门夜网 Kids Maternity and Baby Stores increased comparable store revenue by 2%.39% / 9.35% / 29.78%.  Offline: Multi-format, multi-tier market retail stores exceeded 10,000, profitability rebounded steadily.  Continue to optimize the “two big, two small, multi-specialized” offline store layouts, and build a smart retail channel network covering different market levels and different consumer needs. The total number of self-operated / affiliated stores reached 11,064, and the advantages of offline chain resources continued.Consolidation: (1) 2,105 home appliance 3C home life specialty stores: continue to upgrade the format of professional large stores, and at the same time promote the cooperation with the business supermarket format, export professional 3C home appliance operation capabilities, settle in RT-Mart, Auchan, Bufeng Lotus Supermarket, relocationThere are 478 supermarket stores; (2) 4,439 county-level market stores: Suning accelerates market sinking and taps the consumption potential of county-level market. Suning Tesco has 2,368 direct-operated stores, retail cloud franchise stores accelerate the expansion of light assets and assign valueIt can reach the low-end market, reaching 2,071 by the end of the year; (3) Multi-format stores reached 4,454: 157 red-baby mother-baby stores and 8 Su Xiansheng supermarkets to create O2O carriers for mother-to-baby / fresh-food supermarkets to meet the diversity of consumersConsumer demand; 4,177 small shops in Suning and 112 franchised stores in Diya to create offline super traffic entrances to support community business development; (4) Hong Kong, Macao and JapanWe have 66 overseas stores.  In 2018, through the expansion of high-frequency product categories to effectively increase customer flow to stores, strengthen precision marketing and other means, the same-store revenue of home appliance 3C specialty stores increased2.39%; Suning Tesco’s directly-operated stores have deepened the third- and fourth-tier markets, continued to expand product efficiency, and increased same-store revenue by 9.35%; The business model of Red Kids Maternity Stores is gradually explored and matured, the quality of operations has steadily improved, and same-store revenue has increased by 29.78%.  Online: Strengthen product expansion and drainage, community marketing and industry linkage to drive sales growth; Online self-operated GMV in 2018 is at least +53.70%, open platform GMV +100 in advance.31%.  Rapid online growth has been continuously confirmed, with an online GMV of 2,083 in 2018.54 ppm (including tax), an increase of 64 in ten years.45%, the proportion increased to 62%, becoming a powerful engine that drives the overall sales growth; of which, the self-operated GMV reached 1,497.92 ppm (including tax), the open platform GMV reached 585.62 trillion (including tax).  (1) Continuous expansion of product introduction and drainage, development of online fast new categories, continuous enrichment of fast moving consumer goods and home improvement department stores, and introduction of new categories to new merchants accounted for 86.01%; pay attention to refined operation management, strengthen related recommendation, carry out precise marketing, and effectively increase user repurchase rate.(2) Carry out democratic marketing, vigorously promote Suning’s push-to-purchase, commission system to encourage pushers to share, and tap the consumption bonus of the push-to-purchase market.(3) Strengthen industrial linkage and deepen farming 4.The 07 billion retail system member demand, through access to life, entertainment and other high-viscous membership rights and interests, has led to the rapid growth of some members.  Financial data analysis: Every increase in comprehensive gross profit margin is 0.91%, the expense rate increased by 0 in ten years.47%, net profit increased by 216 in ten years.35%.  Gross profit margin: Commodity price control effectively increased daily sales gross profit, product structure adjustment, supply chain optimization and single product operation to improve gross profit level, open platform, logistics, finance and other value-added services income increased. The company’s comprehensive gross profit margin increased by 0 compared with the same period last year.91%.  Operating expense ratio: As a result of the strengthening of talent reserves and the amortization of management expenses accrued from the employee shareholding plan, the personnel expense ratio rose to zero in stages.54%; advertising promotion costs increased, advertising promotion rate ratio increased by 0.28%; omni-channel scale effect brings offline rent, decoration, water and other fixed fee rates down by 0.58%; warehousing and distribution network construction supporting the development of new categories and sinking channels has been gradually improved, and the logistics rate has dropped by 0%.13%.The company’s total expense ratio increases by 0 every year.47%.  Net profit: The net profit attributable to the parent company in 2018 was 133.28 ppm, an increase of 216 in ten years.35%, mainly due to the sale of Alibaba shares, logistics real estate funds to buy company assets and other investment income and the impact of changes in fair value.In order to effectively strengthen cash management, Suning launched an investment and wealth management business. Without taking into account the investment and wealth management income generated by this part of the restructuring of operating funds, Suning realized a deduction of non-net profit in 20183.100 million, a year-on-year decrease of 41%.  Cash flow: The net cash flow from operating activities in 2018 was -139 trillion, mainly due to the rapid development of financial business and the increase in loan size brought about a net cash flow replacement.6 billion.In addition, the company strengthened financial support to suppliers and actively developed sales to the public. The increase in the size of accounts receivable has dragged down operating cash flow performance.  The logistics resources are abundant, the service capacity is continuously improved, and the logistics service income is increasing by 40% every year.82%.  As of the end of December 12, 2018, Suning Logistics and Tiantian Express had a total area of 9.5 million square meters of warehousing and related supporting facilities, with 27,444 express outlets, a logistics network covering 351 prefecture-level cities across the country, and 2,858 district and county cities.Increase by 40 compared to the same period last year.82%.Based on the development needs of fresh products, the construction of cold chain logistics has been accelerated, and 46 fresh cold chain warehouses have been expanded to cover 179 cities, effectively improving the distribution efficiency of fresh products.At the same time, we will focus on improving the logistics service capabilities of the county market. Until the end of 2018, 264 county-level comprehensive service centers have been established.  Suning’s financial capital continued to strengthen, and financial services revenue was two years.44%.  Suning Finance carefully focused on the needs of the Suning ecosystem, gathered core businesses and products, accelerated the transformation of fintech companies, exported fintech capabilities, and increased operating income by 80%.44%.The funding for the B round of capital increase and share expansion of Suning Financial has been fully in place. The C round of capital increase and share expansion will continue to strengthen capital strength, promote product and service innovation, and increase user stickiness.In the future, if Suning Financial Services is separated separately, it will significantly optimize the operating cash flow of listed companies after it is released.  Investment suggestion: Smart retail enters the era of 10,000 stores, omni-channel multi-format expansion of traffic entry, scale effects will gradually highlight, and maintain a “buy” rating.  Suning has been cultivating home appliance retail for more than 20 years, and has formed a broad economic moat. The omni-channel home appliance retail market share has steadily ranked first, and offline chains have entered the era of ten thousand stores.Under the scale effect of multi-channel multi-format operation, the profitability of offline stores rebounded, providing the company with a rich and stable source of income.Offline will promote the layout of stores around “two big, two small, multi-specialized” to fully meet the diversified consumer demand; online will consolidate the advantages of traditional live products, increase the transformation of open platform merchants, strengthen refined operations, and improve user recoveryPurchase rate.When the e-commerce search traffic bonus peaked, the value of offline stores ushered in a revaluation. Suning expands new traffic entrances based on the original stores: (1) Retail cloud franchise stores quickly promote market sinking and tap county-level marketsConsumption potential; (2) Suning fights to seize the dividends of social traffic and strengthen the industrial linkage of the retail system; (3) Suning’s small stores go deeper into the last mile to support the community group business in order to reduce costs and draw highly sticky social traffic in the community.Suning is a retailer, but also a supply chain enabler and retail service provider. It continues to export supply chain service capabilities such as logistics and finance, and service revenue is expected to grow in volume.If Suning Finance achieves an independent spin-off and listing, it is expected to significantly optimize the cash flow of listed companies and reorganize the financial impact after the listing.The company’s main business has solid profitability and clear strategic development logic. It is expected to achieve operating income of 3,102 in 2019-2021.44 / 3,896.62 / 4,815.4.2 billion, realizing net profit attributable to mother 177.19/22.63/67.5.9 billion.  Risk prompts: 1. Online-offline integration is less than expected, and online business costs have soared; offline store renovation has been hindered, poor expansion of new store operations has intensified and intensified, causing the company’s profit growth; 2. Search traffic dividends have diminished and Tmall flagship store trafficWeakness of advantages; Suning’s new purchases of retail sales, retail cloud, Suning’s small stores and other new traffic entrances did not develop smoothly, and traffic costs rose; 3. Insufficient risk control capabilities of financial services, increased bad debts continued to drag the Group’s cash flow to deteriorate.