Results first-take: FY22 net loss of RMB0.83bn, in line with profit warning
Sun Art recorded attributable loss of RMB0.74bn for FY22 (i.e., 12 months ended Mar 2022), vs. its attributable profit of RMB2.1bn in FY21.
Adding back the after-tax provision of c.RMB1.4bn (due to store impairment losses, special loss allowance and litigation), core net profit was estimated at c.RMB0.6bn, above our expectations.
FY22 final DPS of HK$0.045/RMB0.038 was proposed (DPS for 15 months ended 31 Mar 2021: HKD0.13/RMB0.11, following its change of financial year-end). More to follow after results briefing at 9am on May 25 (Wed). We are currently reviewing our TP and rating.
Revenue down by c.5% y-o-y to RMB88bn in FY22, with same-store sales growth (SSSG) of -6.7%, mainly due to the fierce competition in offline sales from other channels (e.g., community group buying [CGB]) and the COVID-19 disruptions during 2H FY22.
Meanwhile, B2C online business and the cooperation with Alibaba Group in CGB operations saw strong growth, partially offsetting the contraction in offline sales.
Gross profit down 11% y-o-y to RMB21.4bn, with a GP margin of 24.4%, down 1.5 ppts.
Operating profit down 99.5% y-o-y to RMB18m, mainly due to RMB1.9bn pre-tax provision from the impairment loss of stores, litigation, and the increase in special bad debt allowance, excluding which operating profit would amount to c.RMB1.9bn, with an OP margin of 2.1%.
During FY22, Sun Art opened 5 new hypermarkets, 3 superstores and 73 mini stores. Out of its 504 hypermarkets in China, Sun Art currently operates 10 and 26 hypermarkets in Jilin and Shanghai, respectively. In fact, SSSG in areas other than Shanghai and Jilin grew by a double-digit in April 2022, supported by increasing consumer demand for food and groceries.
Looking ahead, lingering pressure from the competition posed by CGB players may continue in the near-term, while we expect Sun Art to see easing impacts from COVID-19 disruptions in the coming months as the affected regions are becoming more under control.
Riding on the success of a double-digit SSSG in the pilot stores during 2H FY22, Sun Art should further remodel 50+ stores into “offline experience centers” under its remodeling version 2.0 scheme in FY23. We believe Sun Art should also continue to build up its stores into “online fulfillment centers” to support its online business growth.
