Follow up report on commercial and retail industry: multi-point outbreak of the epidemic, highlighting the value of supermarket guarantee

According to Yonghui Superstores Co.Ltd(601933) disclosure, from January to February 2022, the company achieved a total operating revenue of about 20.4 billion yuan, with a year-on-year increase of about 3%, of which the same store increased by about 1.6% and the operating net profit was about 760 million yuan. According to the announcement of Chengdu Hongqi Chain Co.Ltd(002697) company, in the first quarter of 2022, the company achieved revenue of 2.441 billion yuan (YoY + 8.0%) and net profit attributable to parent company of 122 million yuan (yoy-1.6%). After deducting the impact of investment income, the company achieved net profit attributable to parent company of 101 million yuan (YoY + 9.1%). In terms of profitability, the company’s comprehensive gross profit margin in the first quarter of 2022 was 29.7% (- 0.2pct), which remained basically stable.

In March, the epidemic spread widely, lasted for a long time, and the cargo flow decreased. This round of Omicron is a highly infectious strain. According to the data of the National Health Commission, the cumulative number of covid-19 infections in China exceeded 320000 during the period from March 1 to April 12, and has affected more than 30 provinces. Under the dynamic clearing policy, at present, the city closure / global static management is mainly adopted. Under strict control, the warehouse is closed or the transportation capacity is insufficient, resulting in the shortage of goods supply.

3.11 Changchun was closed, and 4.1 Shanghai implemented global static management. The freight flow index (based on the daily average in 2019) of the two cities fell below 20, close to the level of the Spring Festival in 2022, and the decline range of flow exceeded the epidemic level of Xi’an in 2021.

Home isolation highlights the demand for storing essential products. Due to the logistics spread of the epidemic in this round, the infection and the virus spread faster than expected, the clearing time of the street or community is delayed, the residents’ home isolation time is prolonged, the demand for essential goods is prominent, the demand for vegetables, meat products, eggs, rice flour, oil and salt, soy sauce, toilet paper and other products is relatively continuous, and the order object is changed from the family individual to the head of the community. After the goods arrive in the community, the head of the community will distribute them to the households. Under the closure of the city, the supplier’s warehouse is closed or some riders are in short supply due to home isolation, and the deployment capacity of foreign insurance and supply personnel is also limited. Under the processes of picking, packaging and delivery, the daily supply of goods is limited, and the price also begins to rise. The lack of sorting manpower and transportation capacity slightly suppressed the income of supermarkets, but the benefit logic of the industry is similar to that in the early stage of the epidemic.

In times of peace, residents’ demand for hoarding goods continued, the price sensitivity was not high, and the CPI in the epidemic area rose. According to the data of the Bureau of statistics, in March 2022, China’s CPI increased by 1.5% year-on-year and + 0.6pct month on month. The CPI of Shanghai and Jilin increased by 2.2% and 1.9% year on year and + 0.7pct and 1.3pct month on month respectively In contrast, the year-on-year growth rate (+ 31.7%) and month on month growth rate (+ 14.2%) of fresh vegetables in Shanghai are higher than the national level of 14.5pct and 13.8pct respectively; The price of pork in Shanghai also fell because the price of pork in Shanghai was lower than that in the whole country.

The demand for people’s livelihood goods continues, and supermarkets actively play a role in ensuring supply. In the case of insufficient riders and relatively limited supply of goods on platforms such as community group purchase, supermarkets such as Yonghui, Jiajiayue Group Co.Ltd(603708) , Lianhua and so on have actively played a role in ensuring supply. During the epidemic in Shanghai, the supply of Yonghui Superstores Co.Ltd(601933) Shanghai stores was about twice as much as before. Since March 10, the online order increment of Yonghui Shanghai has increased by 2-3 times.

After the Internet antitrust, the pressure of cross-border competition is reduced: from the perspective of the market competition pattern, the antitrust policy further regulates the development of the industry, the growth of community group buying slows down, the daily order volume of the head platform tends to be stable, the pursuit of cost reduction and efficiency increase, some regional players withdraw from the market, the business of prosperity and optimization, Shihui group and Jingxi shrinks, live on the same journey, the dead radish goes bankrupt or goes bankrupt one after another, and the diversion margin to supermarkets is weakened.

Investment suggestion: looking back at the early stage of the epidemic, the revenue of Yonghui, Jiajiayue Group Co.Ltd(603708) , Chengdu Hongqi Chain Co.Ltd(002697) , Sanjiang Shopping Club Co.Ltd(601116) 20q1 was + 31.6%, + 39.0%, 24.0% and 18.8% respectively. On the profit side, the net profit also increased significantly, with + 41.1%, + 27.9%, + 80.8% and + 40.2% respectively. We believe that in the first quarter of this year, due to logistics restrictions, supply shortage and rising cost pressure, the performance growth of supermarkets may not reach the same level as that in the same period in 2020. However, due to the demand for mandatory products and the low price sensitivity of residents under the mood of hoarding goods at home, the prosperity and sustainability are still worth looking forward to. As the epidemic situation continues from March to April, we are optimistic about the role of supermarket supply chain system in ensuring supply. National or regional leading companies such as Yonghui Superstores Co.Ltd(601933) , Jiajiayue Group Co.Ltd(603708) , Chengdu Hongqi Chain Co.Ltd(002697) and so on have obvious supply chain advantages, deep cultivation of fresh food procurement for many years and deep barriers. We suggest paying attention to them.

Risk tip: the impact of the epidemic exceeded expectations, market competition intensified, raw material costs rose, and the improvement of the company’s operation was less than expected.

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