Behind the impressive financial report data, there are worrying crises hidden. In 'The Heaven Sword and Dragon Saber', Zhang Wuji's mother, Yin Susu, warned him before her death that 'the more beautiful a woman is, the more likely she is to deceive.' Of course, this is not absolute, but at least it is Yin Susu's own experience. Beautiful women easily evoke goodwill and lower one's guard, and for listed companies, beautiful financial reports also easily foster trust. However, many can see the surface but not the crisis hidden behind the 'beauty.' Not long ago, Yonghui Superstores released its first-half 2020 financial report, showing impressive core financial data. But some are pondering whether there are signs of crisis lurking behind it. -01- Yonghui Superstores Heading Toward the Spotlight To be honest, it has not been easy for Yonghui Superstores to reach its current position. Looking back, Yonghui Superstores was once a small storefront of 100 square meters. After years of hard work by brothers Zhang Xuanning and Zhang Xuansong, Yonghui Superstores has become a domestic supermarket giant. Last year, Yonghui Superstores even surpassed Walmart to enter the top three of China's top 100 supermarkets. Under the special epidemic environment this year, the huge demand for online supermarket shopping has been fully awakened. Yonghui Superstores has thus had its moment in the spotlight. According to the financial report, in the first half of 2020, Yonghui Superstores achieved operating revenue of 50.516 billion yuan, a year-on-year increase of 22.68%. This is also the first time since Yonghui Superstores went public that its semi-annual revenue exceeded the 50 billion yuan mark. Net profit attributable to shareholders of the listed company was 1.854 billion yuan, a year-on-year increase of 35.36%, and net operating cash flow also increased significantly by 151.65% to 5.033 billion yuan, both breaking the highest records since Yonghui Superstores went public. From the perspective of various business segments, both major businesses of Yonghui Superstores maintained rapid growth in the first half of 2020. Revenue from fresh food and processing business reached 22.825 billion yuan, a year-on-year increase of 27.51%; revenue from food and daily necessities business reached 224.148 billion yuan, a year-on-year increase of 19.39%. In terms of market share, according to the latest data on the company's official website, as of August 28, 2020, Yonghui Superstores has covered 29 provinces and 553 cities (districts, counties) nationwide, with 947 stores opened and 226 stores under construction. This year, it is expected to achieve a breakthrough of 1,000 offline 'large stores.' As an opportunity created by the COVID-19 pandemic, Yonghui Superstores' online business has also grown by leaps and bounds. According to the interim report, as of June 30, 2020, the number of online business members reached 32.84 million, with 7.72 million monthly active users during the reporting period. Online operating revenue reached 4.561 billion yuan, a year-on-year increase of 242.93%, accounting for 9.71% of main business revenue. The 'home delivery' business has become a new growth driver. In addition, in the first half of 2020, Yonghui Superstores' comprehensive gross margin was 22.37%, an increase of 0.53 percentage points year-on-year; the expense ratio during the period was 18.28%, at a low level in the industry, of which the management expense ratio and financial expense ratio decreased by 0.32 percentage points and 0.02 percentage points year-on-year respectively; Yonghui Superstores' total asset turnover was 0.98 times, and inventory turnover was 3.86 times, leading the supermarket industry. The series of data presented already gives an unspoken feeling. Yonghui Superstores has indeed achieved this, and is moving forward steadily with big strides. -02- The Struggle Between Two Brothers Under 'Internal Horse Racing' Yonghui Superstores, which is advancing triumphantly, has not been smooth sailing in recent years, especially between founders Zhang Xuanning and Zhang Xuansong. Elder brother Zhang Xuanning has always been low-key and has been 'behind the scenes,' while younger brother Zhang Xuansong has been in the front for public appearances. However, on the road of Yonghui Superstores' innovation and development, differences gradually emerged between the two brothers. In 2013, Yonghui Superstores began to expand its online business, but suffered repeated failures. In 2015, Zhang Xuanning incubated Yonghui Cloud Creation on the basis of Yonghui Superstores. Zhang Xuanning aspired to build Yonghui Cloud Creation into a 'TOB service retail company' to give Yonghui Superstores, which has deep offline retail experience, an innovative online gene. However, contrary to expectations, the typical representatives of online expansion, Super Species and Yonghui Life, did not achieve their initial goals and were plagued by losses. The unfavorable performance forced Yonghui Cloud Creation to be divested from the listed company system by Yonghui Superstores. In 2018, the two brothers, who had been partners for many years, 'split up.' Zhang Xuanning took Yonghui Cloud Creation and 'left,' while Zhang Xuansong continued to develop the original offline supermarket business. During this process, the two sides even had a 'competitive' relationship. Zhang Xuansong used Yonghui Maicai and Yonghui mini to directly benchmark against his brother Zhang Xuanning's Yonghui Life. The 'internal horse racing' between the brothers did not bring good results. Some industry insiders analyzed that although Yonghui Superstores dumped the continuously loss-making Yonghui Cloud Creation and achieved immediate effects on performance, 'de-clouding' is actually 'planting a mine' for Yonghui Superstores. 'After all, walking with one leg is not as stable and fast as walking with two legs.' Without Yonghui Cloud Creation, it means that Yonghui Superstores cannot gain a firm foothold in the development of new retail. In addition, Yonghui Superstores' mini stores encountered development bottlenecks, putting both brothers in an awkward situation. Yonghui Cloud Creation suffered losses for years, and Yonghui Superstores' stock also showed a sluggish situation. Fortunately, this year's COVID-19 pandemic seems to have made Zhang Xuansong clear-headed and began to realize the importance of Yonghui Cloud Creation. On July 31 this year, Yonghui Superstores announced that it would repurchase 20% of the shares held by Zhang Xuanning, chairman of Yonghui Cloud Creation, for 385 million yuan. After the transaction is completed, Yonghui Superstores' shareholding will increase from 26.6% to 46.6%, making it the largest shareholder of Yonghui Cloud Creation. The 20% stake that was transferred before is now fully taken back, which appears to outsiders as another 'power shift' between the two brothers in the group. After the transaction is completed, Zhang Xuanning's shareholding will decrease, and he will step down from the position of actual controller of Yonghui Cloud Creation. Whether the 'differences' between the brothers have been reconciled is still hard to say. -03- The Crisis Hidden Behind the Financial Report From the overall performance, Yonghui Superstores did deliver a good answer in the first half of this year. But if we break down the various business indicators, what conclusions can we draw? There is analysis in the industry that Yonghui Superstores has three issues worth pondering. First, revenue growth slowed significantly in the second quarter. From the interim report, it can be seen that Yonghui Superstores' overall performance in the first half was indeed good. But if we split it by quarter, the overall performance in the first half was mostly due to better-than-expected performance in the first quarter, while in the second quarter, revenue growth fell to 12.24%, and profit growth fell to 16.55%. Whether compared with the first quarter or with the company's past revenue growth, the second quarter's growth rate is indeed a relatively low level. The growth in the first quarter is related to the impact of the epidemic and residents' hoarding demand, while the second quarter gradually returned to normal. Therefore, whether Yonghui Superstores can maintain high growth in subsequent revenue remains to be seen. Second, the new store opening target was only 24% completed. Rapid expansion capability is one of Yonghui Superstores' core competitiveness. This year, Yonghui Superstores plans to open 130 new stores, but in the first half, only 31 new stores were opened, completing only 24% of the annual target. From the company's past pace, the store opening speed in the first half of this year was clearly below expectations. Third, whether online sales can meet expectations. Yonghui Superstores set a target of 10 billion yuan in online sales for this year. In the first half, online sales reached 4.561 billion yuan, completing 45.61% of the target, with online revenue accounting for 9.71% of main business revenue. But as everyone knows, the outbreak of online business in supermarkets in the first half was due to the epidemic. Whether it can continue in the second half will test the business department's efforts in retaining online users, acquiring new users, and increasing activity. -04- Ahead Are Goals to Surpass, Behind Is the Threat of Chasers After all, Yonghui Superstores, with a market value of less than 100 billion yuan, still has a large gap compared with international mature chain supermarkets such as Walmart and Carrefour. Therefore, there is still a long way to go. While trying to surpass its goals, Yonghui Superstores also faces the threat of chasers. When it comes to Yonghui Superstores, one cannot help but mention Jiajiayue, which has a similar model. Both are chain supermarket enterprises characterized by fresh food. Although Yonghui Superstores has achieved nationwide layout, Jiajiayue has just stepped out of Shandong. But the development momentum of Jiajiayue must be taken seriously. In terms of enterprise scale, Jiajiayue is only one-seventh of Yonghui Superstores, but in terms of market value, Jiajiayue's market value has reached 31% of Yonghui Superstores. Comparing the two companies' revenue growth, sales gross margin, and cost control, the difference is relatively small. However, as a company still expanding, Jiajiayue has more imagination in the capital market. Currently, Jiajiayue is limited to expansion in Shandong and its surrounding areas, while Yonghui Superstores has begun to blossom across the country. But as the old saying goes, 'Starting a business is hard, but maintaining it is even harder.' Yonghui Superstores' expansion may face more growing pains. Source: Finance Without Taboo (ID: caijwj) China News Service Economic WeChat and Finance Without Taboo co-created, Author: Thirteen Uncle Tips will be paid 400-2000 yuan once adopted.