Key takeaway

The company holds a portfolio of high-quality commercial assetsin Shanghai and continues to develop new commercial projectsin other major cities. While its outlet business maintainscounter-cyclical growth, the company actively revitalizes existingproperties and develops ZX Creative Zone formats to attractyounger consumer groups. At the same time, the company is oneof the few listed retail companies that has continuouslyconverted book value into market value through assetsecuritization in recent years to enhance shareholder returns.Asset operation efficiency is expected to improve afterdeconsolidating the supermarket business, and the currentsituation where the company's share price is below net assets pershare is expected to change.

Event

In 2025, the company recorded operating revenue ofRMB24.785bn, down 10.44% YoY. In 4Q25, revenue wasRMB5.731bn, a YoY decline of 5.40%.

Net profit attributable to shareholders of the parent company in2025 was RMB631mn, down 59.74% YoY, while net profitexcluding non-recurring items was RMB104mn, down 6.79% YoY.In 4Q25, net profit attributable to shareholders of the parentcompany was RMB336mn, down 742.69% YoY, while net profitexcluding non-recurring items was -RMB49mn, up 5.74% YoY.

In 1Q26, the company achieved operating revenue ofRMB6.915bn, down 8.93% YoY. Net profit attributable toshareholders of the parent company was RMB792mn, up 310.76%YoY, while net profit excluding non-recurring items wasRMB121mn, down 4.72% YoY.

Quick Take

Termination of supermarket entrusted management, deconsolidation drives asset efficiency improvementThe company announced on May 14, 2026 that it will terminate the entrusted management of a 41.51% stake inLIANHUA. Its shareholding and voting rights ratio will both be 15.15%, and it will no longer be included in theconsolidation scope. According to the 2025 annual report, LIANHUA had total assets of RMB17.9bn, revenue ofRMB19.1bn, and a net loss of RMB177mn. As the supermarket industry has been under sustained pressure overthe past few years, it has been a drag on the company's fundamentals. The deconsolidation of the supermarketbusiness can effectively reduce the company's operational complexity and improve asset operation efficiency.

Continued upgrading of premium assets, with deconsolidation driving asset efficiency improvementThe company's Qingpu Outlet project, as a leading outlet project in China, contributed RMB433mn in net profitin 2025, up 9.4% YoY, and the Phase II project continues to advance. The company's other outlet projects alsomaintained sound revenue and profit growth momentum. No.1 Yaohan refreshed some floor spaces with a"high-quality, youthful" positioning; No.1 Department Store created a silver economy benchmark project "BailianFanhuali"; the anime-themed retail formatZX collaborated with BW exhibition to boost overall foot traffic, andextended outward with theZX-LAB Nanfang Store (embedded flagship store) product line.

Investment recommendation: The company's deconsolidation of the supermarket business has broughtpositive balance sheet enhancement and efficiency improvement. The outlet business within the main operationsmaintained sound growth momentum, contributing significant incremental profit. Taking into account somegains from asset monetization, we estimate the company's net profit for 2026-2028 to be RMB899mn,RMB783mn, and RMB826mn respectively, corresponding to P/E multiples of 17x/19x/18x. We maintain our"Overweight" rating.

Risks

1. Elevated commercial space standards. The company must enhance the quality of its commercial spaces interms of hardware and technology to attract brands. This could lead to increased costs and the risk of losingbrands due to inadequate commercial spaces.

2. Potential decline in residents' marginal consumption propensity. Shifts in consumer habits may result in areduced marginal consumption propensity, causing demand to fall short of expectations.

3. Persistent e-commerce traffic diversion. Major e-commerce platforms all have channels offering"low-priced branded goods" to varying degrees, which will cause some diversion from the outlet format.Competition from urban outlets may also create uncertainties.

4. Uncertainties remain in the supermarket divestiture. The termination of voting rights and entrustedmanagement for the supermarket business announced this time still requires relevant approval procedures.