BAILIAN GROUP(600827)：LONG-TERM TREND REMAINS INTACT DESPITE NEAR-TERM PRESSURES

　　Affected by the pandemic, Bailian Group’s earnings have been under pressure since 2020, and Covid flare-ups in Shanghai this year further disrupted its operations. With the gradual easing of the pandemic, the total retail sales of consumer goods have witnessed a marginal improvement, and consumer demand demonstrated resilience. With major department stores located in core business areas in Shanghai, Bailian continues to open new stores and revamp old ones. Bailian also joins hands with Huawei to launch digital cooperation plans, creating superior offline experience through digitalization and store upgrades. As online shopping stabilizes and consumers place more importance on offline experience, we believe Bailian, which offers great offline experience and digital cloud stores, has the ability to cope with the competition from online shopping and gain growth momentum in new retail. Considering that Bailian is gradually rid of the repercussions of the pandemic and will benefit from the post-pandemic recovery of consumption, we initiate coverage with a “BUY” rating.
　　 Company profile: A retail giant in East China with an omni-channel presence.
　　Actually controlled by the Shanghai State-owned Assets Supervision and Administration Commission （SASAC）， Bailian holds multiple high-quality retail enterprises and brands, including Lianhua Supermarket and Sanlian Group, covering department stores, supermarkets and chain stores under business models such as joint sales, distribution and leasing. Since 2020, the revenue proportion of joint sales declined due to the pandemic. As of end-2021, Bailian has 1,359 stores across the country （excluding franchised stores of supermarkets and convenience stores）， of which 1,140 are located in East China, and 44 of them are self-owned, accounting for 3%. The total gross floor area of the Company’s stores is around 5.1mn sqm, of which 2.38mn sqm are self-owned, accounting for 47% of the total.
Industry trends: While the pandemic brought huge challenges to the industry, the total retail sales of consumer goods have seen marginal improvement. 1） The total retail sales of consumer goods have experienced marginal improvement: In 2022, the market faces the pressure of occasional Covid flare-ups. As the pandemic eases, retail sales improved marginally. During May-Sep 2022, the total retail sales in China changed by -6.7%/+3.1%/+2.7%/ +5.4%/+2.5% YoY, while that in Shanghai changed by -36.5%/-4.3%/+0.3%/ +2.5%/+0.3%, respectively, implying a swift recovery to the level in the same period of 2021. 2） Online shopping stabilizes: In 2021, the online retail sales of physical goods increased by 12% and accounted for 24.5% of the total, and the latter declined for the first time with a decrease of 0.4ppts YoY. Against this backdrop, offline consumption, with an edge in customer experience and with the help of digitalization, attracted more consumers. As consumption keeps upgrading, Bailian, which focuses on upgrading customer experience with a strong foothold in offline retail, is well-positioned to benefit from the　　reshaping of offline sales experience.
Company advantage: Bailian covers core locations in premium business areas and reshapes offline consumption with superior customer experience.
　　Bailian’s shopping malls are located in the core business areas in Shanghai.
　　The high-quality retail properties in core areas are scarce in Shanghai, which should warrant strong and persistent demand. With the expansion of new outlets and the revamp of old shopping malls, Bailian focuses on creating better customer experience and meeting diversified consumer needs. At the same time, as the digitalization process advances, it has achieved the full connectivity between business and data and entered into cooperation with Alibaba and Huawei successively. Besides, encouraged by Shanghai’s policies to apply for duty-free concessions, Bailian has filed the application in Jul 2020 as announced. We suggest paying attention to the further progress of the application.
Financial overview: Short-term earnings came under pressure due to the pandemic, yet long-term operations remained stable.
　　In Mar-Jun 2022, the regional Covid resurgences in Shanghai affected Bailian’s operations. In 3Q22, it posted revenue/attributable net profit （ANP） of Rmb25.1bn （-5% YoY）/Rmb-190mn （-133% YoY）。 At the same time, Bailian actively responded to pandemic relief measures by reducing or exempting rentals for small and micro enterprises and individuals. By exempting rentals for 6 months in 2022, Bailian expects to see a decline of around Rmb215mn in ANP. Under the short-term pressure, Bailian has maintained the overall stability of the expense ratios, and its cash & cash equivalents stayed at a high level, while accounts payable days were extended reasonably. The long-term operations of the Company remained stable and healthy.
Potential risks: Macroeconomic headwinds; regional Covid flare-ups; online traffic diversion; intensified competition; disappointing new store expansion; less-than-expected old store upgrades; a decline in operating efficiency due to customers’ preference over larger-sized stores; uncertainty in the license application for duty-free retailing.
Investment strategy: As Bailian was greatly affected by the regional Covid flare-ups in Shanghai this year, we put our 2022E/23E/24E ANP forecast at Rmb-205mn/488mn/ 626mn, corresponding to EPS forecast of Rmb-0.11/0.27/0.35. In 3Q22, Bailian’s PE multiples deviated from the normal level as the ANP turned negative. As we do not expect its 2023E ANP to fully return to steady state for the time being, its PE multiple will likely deviate from the industry average.
　　Considering that Bailian is gradually rid of the repercussions of the pandemic and will benefit from the post-pandemic recovery of consumption, we initiate coverage with a “BUY” rating.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。