Investment Analysis Report: Zhongmin Baihui Retail Group Ltd (ZMBH) FY2024 Financial Report
Date of Report: October 10, 2024
Reporting Period: July 1, 2023 – June 30, 2024
Business Overview
Zhongmin Baihui Retail Group Ltd. (ZMBH) operates primarily in the retail sector, managing integrated department stores and supermarkets under the brand “中闽百汇” in Fujian Province, China. The group is also expanding its footprint in the mega outlet mall sector with operations in Hunan and Jiangsu provinces. As of September 2024, the group owns 13 self-operated stores and manages 3 others in Fujian, and operates two mega outlet malls in Changsha and Wuxi.
Core Business Segments:
- Retail Stores: Integrated department stores and supermarkets focused on middle-income consumers.
- Mega Malls: Two large outlet malls providing a diversified shopping and entertainment experience.
- Real Estate Interests: Residential and retail leasing via an associate, Citi-Base Commerce Logistics in Xiamen.
Geographic Presence: Primarily in Fujian Province, with outlets in Hunan and Jiangsu provinces.
Industry and Market Position
ZMBH operates within the highly competitive Chinese retail industry. Its key competitors include other retail chains and department stores catering to middle-income consumers. However, the company distinguishes itself with strategic expansions into mega outlet malls, a growing segment that has proven resilient during economic slowdowns.
Market Share: ZMBH holds a notable market position in Fujian but faces increased competition from both domestic and international retail chains in China.
Revenue Streams and Customer Base
- Revenue Sources: Primarily from direct sales at department stores and supermarkets. Additional revenue is generated through managed rental income from outlet malls and associates.
- Customer Base: ZMBH primarily serves middle-income consumers in China, particularly in regions with high residential density and expanding urbanization.
- Supply Chain: The company maintains strong relationships with both international and domestic brands, optimizing its product mix to offer value to its consumers.
Financial Analysis
Income Statement (Profit or Loss)
- Revenue: RMB 983.7 million, a modest increase of 1.7% compared to FY2023. This reflects a challenging retail environment and slow economic growth in China.
- Gross Profit: Increased by 7.3% to RMB 231.8 million, indicating improved operational efficiency.
- Net Profit: RMB 23.8 million, up 12.0% from FY2023, reflecting effective cost control measures and strategic store closures.
Balance Sheet
- Total Assets: Increased to RMB 1.27 billion, with non-current assets growing to RMB 576.6 million, indicating a strong asset base.
- Net Current Liabilities: Reduced significantly to RMB 2.6 million from RMB 10 million, signaling an improvement in liquidity.
- Equity: Total equity grew to RMB 192.5 million, an encouraging sign of financial stability.
Cash Flow Statement
- Net Cash Flow from Operations: RMB 38.0 million, a decline from RMB 89.2 million in FY2023 due to higher operating expenses.
- Capital Expenditures: Reflecting the group’s ongoing investment in store renovations and expansions, with significant cash allocated to new stores like the Haicang supermarket.
Dividends
- Dividend Declared: The group announced a dividend of one Singapore cent per share, signaling shareholder confidence and a stable payout despite challenging market conditions.
Key Strengths
- Resilience in Outlet Mall Segment: The outlet mall operations contributed strongly, particularly the Changsha outlet, which delivered a record profit of RMB 28.9 million, up 33% year-over-year.
- Improved Profitability: Despite a challenging retail environment, ZMBH increased its net profit by 12%, reflecting effective cost management and strategic realignment.
- Liquidity Improvements: ZMBH successfully reduced its net current liabilities, improving its liquidity position.
- Growth in Non-Retail Activities: The company has innovatively leveraged non-shopping activities such as entertainment and leisure offerings in its malls to attract footfall and boost profitability.
Key Risks
- Weak Consumer Demand: The slow recovery in retail sales growth (3.7%) in China presents an ongoing risk to revenue growth.
- Store Closures: The company closed two stores in FY2024 and one more in August 2024, reflecting the need to streamline underperforming assets. This could limit immediate revenue growth.
- Dependence on Outlet Malls: While outlet malls are a profitable segment, the Wuxi outlet is still in its gestation period and not yet generating sufficient profit to offset previous losses.
Special Initiatives
ZMBH has actively closed underperforming stores while opening new locations in high-potential areas like the Haicang supermarket, demonstrating its focus on operational efficiency and strategic realignment.
Recommendations
For Existing Shareholders
Hold
The company is gradually improving its profitability, especially through its outlet mall operations. With dividends declared and improved liquidity, holding the stock could provide consistent returns. The growing asset base and strategic realignment in underperforming areas are positive signs.
For Potential Investors
Cautious Buy
The outlet mall sector shows resilience and could be a growth driver. However, weak consumer demand and the company’s ongoing restructuring efforts pose risks. Long-term investors may find value in the company’s strong asset base and improving profitability, but short-term volatility should be expected.
Disclaimer
This analysis is based solely on the FY2024 Annual Report of Zhongmin Baihui Retail Group Ltd. Investors are encouraged to perform their own due diligence and consider market conditions before making investment decisions.
