Yonghui Superstores Alert:Preliminary FY16results-in line with DBe

Preliminary FY16results – net profit RMB1.2bn

    Yonghui reported preliminary results for FY16on 17January after the marketclose. Net profit rose 105% yoy to RMB1.2bn on a 17% increase in salesrevenue, to RMB49bn. The company attributed the increase in net profit to: 1)the optimization of the organizational restructuring and strong cost control, 2)one-off gain from the disposal of its Lianhua stake, and 3) finance income(DBe: RMB88m in FY16, vs. RMB25m in FY15). Revenue in 4Q16was 25% offull-year 2016, vs. 27%/25% in 4Q14/15, respectively.

    Core FY16results in line with DBe; maintaining Buy

    Excluding the disposal gain of RMB170m, core net profit (RMB1.1bn) andrevenue (RMB49bn) were in line with DB estimates (RMB1.1bn/50bn). Webelieve same store sales increased by ~1% yoy in 4Q16, vs. 2-3% increase in1H/3Q16. For 4Q16, core net profit was RMB255m (vs. RMB8m in 4Q15) andnet margin was 2.1%, in line with that in 4Q14.We maintain our Buy recommendation as we believe the company should be along-term beneficiary of China’s secular trend of modern retail andmanagement’s operational expertise in fresh food.

    We expect its operationalefficiency to improve, given the completion of the organizational restructuringin 2016. In addition, we believe Yonghui is gaining market share, driven by itsacceleration in store expansion (adding 70-80stores each year in FY17-18).Downside risks include weak consumer sentiment and SSS.