Shrinking revenue, high debt, and continuous store closures, Yonghui Supermarket relies on selling assets to save itself?

Producer: Sina Finance Listed Company Research Institute

Author: Kun

The end of the year is approaching, and Yonghui Supermarket, which is highly indebted, has sold two assets in a row to recover funds for the winter.

In December, Yonghui Supermarket transferred 1.43% of the equity of Wanda Commercial Management and 10% of the equity of Hongqi Chain at a transfer price of 4.53 billion yuan and 800 million yuan respectively. Among them, Yonghui Supermarket received a premium of 612 million yuan in the transaction of Wanda Commercial Management, and a discount of 163 million yuan in the transaction of Hongqi Chain, which will have an impact on the company's pre-tax profit in 2023.

Shrinking the investment territory, revitalizing assets and recouping funds, or Yonghui Supermarket, which has high financial risks and weak solvency, has to make a decision. As of the third quarter of 2023, Yonghui Supermarket's asset-liability ratio has climbed to 86.54% year after year, and the current ratio is only 0.78 in the same period. In the first three quarters of 2023, Yonghui Supermarket achieved operating income of 62.088 billion yuan, down 12.44% again, and the net profit attributable to the parent company in the same period was 52.2912 million yuan, while the second and third quarters of this year were net losses, and the performance in the fourth quarter will directly determine whether it can turn losses into profits.

Shrink the investment territory and throw two assets in a row to return funds

As the year approaches, Yonghui Supermarket has recouped funds through successive asset sales.

One is that on December 13, Yonghui Supermarket announced that Dalian Yujin Trading Co., Ltd. intends to purchase 388,699,998 shares of Dalian Wanda Commercial Management Group Co., Ltd. held by Yonghui Supermarket in cash, accounting for 1.43% of the total share capital of Wanda Commercial Management, and the transfer price is 4.53 billion yuan. As of the announcement date, the book value of the equity investment was RMB 3.918 billion, and Yonghui Supermarket is expected to receive RMB 612 million through the transaction, of which the completion of the first phase of the equity transaction will affect the company's pre-tax profit of RMB 28.5958 million in 2023. It should be noted that the full transfer price of this share transfer will be paid in eight installments, and the first phase of the equity transaction to be completed by the end of 2023 corresponds to a cash flow of 300 million yuan.

The second is that on December 21, Yonghui Supermarket issued another announcement on the sale of assets, Sichuan Commercial Investment Co., Ltd. intends to purchase 136,000,000 shares of Chengdu Hongqi Chain Co., Ltd. held by Yonghui Supermarket in cash, accounting for 10.00% of the total share capital of Hongqi Chain, with a transaction consideration of 5.88 yuan per share and a total transfer price of 799,680,000 yuan. After the completion of the transaction, Yonghui Supermarket's shareholding in the Hongqi chain will be reduced from 21% to 11%. It should be noted that the book value corresponding to the transfer of 10% equity interest in Hongqi Chain is RMB963 million, while the transaction price is discounted by RMB163 million, which is expected to reduce Yonghui Supermarket's pre-tax profit by RMB163 million for the year. And this is even worse for the performance of Yonghui Supermarket, which is already struggling to turn around.

In both announcements, Yonghui Supermarket stated that the purpose of the transaction was to revitalize the company's assets and reduce the scale of the company's investment.

In fact, Hongqi Chain has performed relatively well in the current chain supermarket industry as a whole, and has maintained stable profitability and revenue growth, with offline stores gradually expanding, and as of the end of June 2023, there are 3,562 stores in Sichuan Province. In addition, in recent years, Hongqi chain has also steadily paid dividends, and has implemented cash dividends 14 times since its listing in 2012, with a cumulative cash dividend of 1.237 billion yuan and a dividend rate of 33.37%. From 2018 to 2022, Hongqi Chain has accumulated cash dividends of 1.025 billion yuan, of which the cash dividends in 2022 are as high as 600 million yuan, and according to the 21% shareholding ratio of Yonghui Supermarket, Yonghui Supermarket has received dividends of 215 million yuan in the past five years.

From this point of view, the reason behind the transfer at a discount under the condition that the dividends are stable and the performance of the target company is not obvious "hard damage" is none other than Yonghui Supermarket's own "lack of money" and urgent need for "blood transfusion". This signal also seems to confirm that Yonghui Supermarket began to change its investment strategy from expansion to contraction a few years ago, and gradually liquidated and reduced its holdings of Guolian Aquatic Products and Zhongbai Group.

When the company is in a difficult situation, foreign investment has become the first tentacle to be cut, and the gradual return of funds is a life-saving straw or a thirst quenching for Yonghui Supermarket, which has high financial risks and weak solvency.

The debt ratio continues to rise, and the current ratio hits a new low in the past decade, will the "genuine discount store" of Pinduoduo be the antidote?

Yonghui Supermarket's current financial risks cannot be ignored. As of the third quarter of 2023, Yonghui Supermarket's total liabilities are 47.240 billion yuan, although it has decreased from 60.2 billion yuan at the end of 2021, but its asset-liability ratio has continued to rise, with 60.93%, 63.69%, 84.47%, 87.68%, and 86.54% in the first three quarters of 2019-2023, respectively, which has been above 80% for three consecutive years, and this is also related to Suning's asset-liability ratio (90.88% in the first three quarters of 2023) Not much different.

As of the third quarter of 2023, Yonghui Supermarket's current liabilities were 25.258 billion yuan, while current assets were 19.770 billion yuan, with a current ratio of 0.78, which was a new low for the company in the past decade. The quick ratio was 0.51 and the cash ratio was 0.30 for the same period, which were below the safe value, and both were significantly worse than previous years. It can be seen that Yonghui Supermarket's current solvency is not optimistic.

In addition to the previous expansion of foreign investment, Yonghui Supermarket has also made a lot of moves for the main retailer supermarket. From the super species of testing the waters of fresh new retail, to the mini stores that have been opened on a large scale, to the Bravo stores, etc., they are frequently "tossed", but they are often "thunderous and rainy". Although it is based on the good intentions of targeting different customer groups and improving the supermarket's super ecology, the actual operation of the store is often less than expected, and the store is finally closed.

According to Yonghui's official website, as of December 23, 2023, the number of Yonghui supermarkets is 1,002. Compared with 2019, the number of Yonghui supermarkets has been as high as 1,440. In the third quarter of 2023, Yonghui Supermarket will only open one new store in the country and sign up for 6 new stores.

Stores continue to close, and the inventory turnover of Yonghui Supermarket is not optimistic. Since 2019, Yonghui Supermarket's inventory turnover days have been as high as more than 50 days, 52.88 days in 2022, and 48.49 days in the first three quarters of 2023.

Recently, according to public information, Yonghui Supermarket has added "authentic discount stores" in stores nationwide, and simultaneously added a discount area on the online APP/mini program to provide surprise discount prices for food and supplies, with discounts ranging from three to seven discounts. For offline retailers who suffer from "high prices and few customers", it seems that they can't escape the "true fragrance law" that is closer to Pinduoduo after all. But in fact, Pinduoduo's style of play is not uncommon, not only Yonghui, but also from supermarkets such as Hema and Wumart to Dingdong to buy food, and Xiaoxiang Supermarket (formerly Meituan to buy food) and other fresh food platforms have all kinds of low-price activities. In the dazzling array of low prices, it remains to be seen whether Yonghui's "authentic discount stores" can attract the attention of consumers and have a positive effect on the company's overall performance and operational capabilities.

In the first three quarters of 2023, Yonghui Supermarket achieved operating income of 62.088 billion yuan, a decline of 12.44% after a year-on-year decline of 2.29% and 1.07% from 2021 to 2022, respectively. Judging from the performance of the third quarter alone, Yonghui Supermarket's current revenue scale is even worse than that of 2019. In the same period, Yonghui Supermarket achieved a net profit of 52.2912 million yuan attributable to the parent company, which was better than the loss in the previous two years, but quarterly, Yonghui Supermarket was a net loss in the second and third quarters of this year, and the performance in the fourth quarter of this year will directly determine whether it can turn losses into profits.