Sun Art Retail Group Ltd

HKEX:6808

Earnings Call Transcript 2022-Q2

[Operator]

Analysts, welcome to the Sun Art Retail Group Limited Financial Results Announcement, 6 Months Ended 30th September 2021. As for the PPT, we have already uploaded this on to the website under Investor Relations of the company.

First of all, the management here with us here today, Mr. Kevin Lin, CEO and Executive Director.

[Kevin Lin, executive]

Good morning, everyone.

[Operator]

CFO, Ms. Desory Wan.

[Desory Wan, executive]

Greetings, everyone.

[Operator]

And Head of Investor Relations, Gu Xiaobei.

[Xiaobei Gu, executive]

Good morning, everyone.

[Operator]

First, we will have Mr. Lin Kevin to give us an opening remark.

[Kevin Lin, executive]

Respected investors, good morning to you. In the past half year, for our company and for the retail business in China, I would say it has been a severe winter. And I would say it has been the most difficult half year for the company. And there has been a shortfall from the expectations in our results. But overall in the nation, for our excellent asset in terms of stores and also our online business, as well as depo operation with Alibaba and the entire staff of the company, we have been working very hard in bringing on better results. I -- and I am sure after the severe winter, we will not only survive and also, we have been looking for talents, building our team, and we will be bringing in a better future and we are preparing for that.

In the next half of the -- second half of the year, it will be better than the first half in performance. We will be putting in efforts to not continue with the negative growth. And also in sales and marketing, building of our. We will continue to bring innovation to that. With the uncertainty of operating situation in the second half, we will be adding impairment provisions. As for our retail changes, we continue to raise our performance in experience, in our retail service, and we continued with our multi-format and multi-stores approach, and we also will build our off-line experiential center for our customers. Thank you very much.

[Operator]

Thank you, Mr. Lin. Next, we will have the CFO, Desory Wan, talk to us about the overall operating results.

[Desory Wan, executive]

Yes, greetings. I will talk to you about the first half or the first 9 months of operating and the environment. First of all, let us look at the PPT, the growth of total retail sales of consumer goods and online physical products. It is more or less the same in terms of last year. But on the other hand, for online physical products, we see that there has been an increase of 19% and 22%, respectively, to see the epidemic situation after the epidemic some of the growth.

However, after the Spring Festival, because of the rebound of the epidemic, it had been coming down again. As for CCI, there has been a drop, as you can see from the trend, because of the epidemic and the -- it had been a negative 5% for CPI. And also for particular pork. It has been negative 46.9% in September, and the pork price has been coming down significantly, which had posed the biggest decline and challenge for the company. For the major companies in the retail sector, there had been -- in the second quarter and third quarter, there had been a downward trend for all these operators. Because of this macroenvironment and with the CGB competition challenge, the entire retail environment has been very challenging. So we look at the stores as of the third quarter end of 2021, we have 561 stores, of which there are, we cover 20 provinces in autonomous regions and we have altogether, during the 6 months, opened 3 hypermarkets, 37 mini stores and closed 2 hypermarkets and we have 491 hypermarkets, 6 superstores and 68 mini stores as of the end of September 2021.

GFA breakdown, self-owned is 32.6%, lease 67.4%. Store number breakdown, cell phone 23.3%, leased 76.7%. Let us look at the strategic progress. Yes. In the first 9 months of the year, even though there had been great pressure, however, our team has been focused on our strategy and also in the building up of our customer experience and services. We have 3 main areas which we will create incentives for customers to shop offline and come to our stores, experience our centers. First of all, we focus on categories that cannot be substituted online. We highlight display of these categories. And we have been able to achieve further performance in all these areas. And there are 3 main areas of actions. And as mentioned, we will be bringing customers to the stores for what is cold, what is hot and what is live in our categories.

We have made major changes in the RT-Mart in these regards, attracting people to the stores. In all our RT-Marts, we have continued to increase the display of such categories, including seafood tank and also poultry stalls and meat stalls. And also for these live seafood, which cannot be sold offline, we have also made it very attractive in the RT-Mart. For pork, it had been a negative 40% contribution in our business. But if you look at the volume compared to same time last year, it is almost a 20% increase. And for seafood, especially with the seafood tank display increase, it had also increased sales by 20% for seafood. And also, we have also provided some fresh and live seafood from offline to online as well. And so there has been increase in seafood sales online as well.

And as mentioned, the live and hot and cold foodstuff, we have increased our efforts in these, and we have nurtured new customers. And also in terms of shopping experience, this is another one of our focus. This experience cannot be substituted online and we create a hustle and bustle shopping atmosphere and selling products through associated display and using KOL scenarios and also from -- we approach it from a customer point of view, making it interesting and small-batch display and for variety display rather than the traditional RT-Mart where it was bulk display and making it more attractive visually taste-wise and also touch-wise for our customers.

And also for some of the food stops, for example, at the end of the day, it all goes cold. And we, for example, for pastry and breads, we make them smaller batches. For example, we -- every batch of these baked goods, they will be smaller in quantity, but there will be more batches made right from the oven. And right from the oven, we make that atmosphere vibrant by sounding the bell, et cetera, so that the customers feel within the store the kind of activity and also the hustle and bustle. So that increases the touch and feel and flavor experience of coming to our RT-Mart.

Now with the epidemic situation in August rebound for June and July. In fact, it had already reached single-digit growth for RT-Mart. So this is directly related to the enhanced shopping experience. At the same time, we are adjusting the tenant mix and we're turning the gallery into traffic inlet. We are very adamant and putting in a lot of efforts in providing more service F&B and also entertainment among our tenants. And in the gallery, we are looking for more site areas for leasing out. And it is some 1% in the vacancy rate for Eastern part of China. And overall, it is only 2% vacancy rates.

So for the gallery business sector revenue, it is about 90% compared to the year before. And the tenants and traffic allow accounts for approximately 40% of the total. With this tenant mix change or upgrade in the gallery, it is providing a new fundamental for future growth in this sector.

And also another action is the upgrade of store warehouse and establishing warehouse-based stores. And we have done 3 things in the past period. First of all, despite the impact from community group buy business, CGB business, we intensify -- with intensified peer competition, the online order keeps a continuous growth of more than 25%. So all the warehouse resource that we enjoy supports these stores. And also, in the first quarter, we have been able to really enhance already our delivery. And also, we have the -- another strategy, a new strategy for the warehousing upgrade to support our stores business, especially for RT-Mart. It provides the best experience and best delivery service. And the 25% for online order growth is significant.

And also, we have a mature business in the -- in our operation in our warehouses. And at the same time, we enhanced the fulfillment capability of our Tmall inventory sharing half-day delivery. There has been an increase in our delivery and by -- this is done by sharing Quick Pick warehouses and convey a belt system available in more stores, which is a sharing of the resources with Tmall. This definitely had compressed our costs and increased our efficiency. So for the second half of the year, we are very confident that there will even be more advancement in this area in stores and warehousing. And at the same time, the core supply chain service provider of Alibaba's CGB business, we have become its core supply chain. So this is providing the service to our controlling shareholder and also in our service centers, we have over 100 purchasing and supply systems to provide the support for CGB and provide the new impetus for growth for our CGB business.

A third action is the multi-format and omnichannel development. Basically, we focus more on the expansion and cautious expansion of our RT-Super and accelerated expansion of RT-Mini. We want to be able to, through negotiations, achieve lower cost and also better sites. And therefore, this will take time. In the first half of the year, there have been no expansion in terms of RT-Super. But rather, RT-Mini had experienced quicker growth, especially in Jiangsu province, we already have 70 such doors. RT-Mini, the strategy is that the revenue of RT-Mini had reached expectations and its loss had also narrowed. It is near single-digit level now. And we expect that in Jiangsu province, we continue to be able to nurture the model of operations for RT-Mini and replicate it.

And based on the RT-Mart, that is the RT-Super foundation, we are able to service the superstores and also our mini stores. And also in the past half year, we have also increased the fresh product capabilities in our supply chain. So that's accelerating the supply chain capability for fresh products and facilitate direct sourcing from farm basis and also deploy processing centers. For our period coming forward, we will adhere to the established strategy and focus on building and creating customer value in the second half of the year. We improved our supply chain capability, especially for fresh products in Eastern China.

We will continue to increase our processing centers for fresh products with coverage of approximately half of the hypermarkets. And we would also radiate the service to the areas outside of these main processing centers. And we want these processing centers to cover half of the hypermarkets overall. And for fruits and vegetables, in terms of the sourcing, there will be direct sourcing from far-fields and near-fields and also we will establish farm-based procurement system so that these fresh products can have a scale of economy.

So this is the main focus of ours in the second half. And then the second main focus is to enhance our customer operating capability. Basically, we have been focused -- the company has been focused on operating the tenants and also the commercial establishment. Going forward, we will be enhancing our customer capability by digitalizing our membership system and by establishing the marketing and content system. And further, we continue to explore business model of our multi-format approach. So we will be upgrading and remodeling our hypermarket to version 2.0 in [Wuxi Changzhou ] store, we will be remodeling our hypermarket, which is a completely new look for our RT-Mart. And also in specific cities, we will continue to pilot RT-Super and RT-Mini and to prepare for the future.

So this is the strategic progress and also our next half strategic focus. Now let's look at the financial highlights. Now in the past 6 months, because of CPI impacts and also epidemic rebounds and there have been challenges for the operation of the company, but our overall operations and performance, it has been good. There has been a -- let's look at the financial highlights for the 6 months ended 30th of September 2021, in this reporting period. So it had been the 6 months. For the revenue, it is RMB 41,534 million. It is a 5% drop from the same period last year. And the gross profit had been dropping slightly. It is RMB 10,933 million, which is a 6.9% drop from the year before. Gross profit margin is a 0.6 percentage, drop to 26.3%. EBIT is 65.7%, dropped to RMB 560 million, and EBIT margin is 2.4 percentage points, dropped to 1.3% Profit for the period, 87.6% to RMB 112 million. And net profit margin is a drop of 1.8 percentage points to 0.3%.

And in the first half, our earnings per share profit attributable to equity shareholders is RMB 117 million, which is a drop of 86% and earnings per share is RMB 0.01 million. And the revenue for the -- with the one-off impact, the actual profit drop is 50%, and it is because of our investment into sales and marketing and also our channel remodeling. If you look at the PPT for the impact, as I've mentioned, for the pork and some of the impact for CGB and the overall retail environment. So for the first half of the year, without traffic increase and our ticket order size, there has been certain increase. But overall, it had presented pressure for the company.

In terms of revenue, it is 5.3% decrease from the year before RMB 95,486 million for revenue. For gross profit and margin and with further increase in leasable area, we have been able to perform at the best among our peers in revenue. And also in gross profit and margin, it is a 0.6% drop from last year in terms of gross margin. And our gross profit drop is because of competition and also in the first half of investment for marketing, and that has been 30% and also our format mix has also been changing. So that is a major impact for our gross profits, which had dropped to 25.5% margin.

And for operating profit, it is about 3% increase from last year. And because of the epidemic, there have been certain concessions and grants. And -- but some of them have been tailoring out. And also the sales and marketing has also increased and staff cost is increased by 3.9% from last year. For the government concessions and grants because of epidemic, it is a -- basically, if we take that element into account, it is basically stable as last year. For net profit and margin, compared to last year, it is a 3.2%, which is stable from last year. And also for our expenses, we also see that with our efficiency increases and also lowering of our leases expenses. So for the first half of the year, our overall working capital base is stable, even though the environment has been challenging, but we have been able to sustain our growth as of the end of 30th of September 2021, our net cash position is RMB 20,144 million. And for CapEx, it is RMB 840 million during the reporting period. And the ROE has been 0.4%. After one-off impact, it is about 1%.

So this is the situation for the first half, even though as it has been a severe winter and overall performance for the entire sector has been lowering, but in terms of our supply chain and also our store advantages and also a deep cooperation with Alibaba, there has been sustaining trends for our performance and we are the best performing in our sector. And this is also because of the team's work and compressing costs and raising our efficiency and, therefore, our cash flow had been stable and our financial position, healthy. So that is the situation for the first half and the second half will be looking up, we believe. We will put in all efforts to get away from negative growth. And at the same time, we want to be able to invest in our new business in our channel and in our transformation of the stores.

And the [indiscernible] is still the leader within the industry and sector. And also with the carbon neutrality goals of the nation, we will be raising the green living, green products and also lowering of emissions for our business. This is our social responsibility and it is only right for us to continue on this call and also to build our outlets into experience centers and also move our online and offline integration. Thank you very much.

[Operator]

Thank you very much. And also thank you, our management, for the presentation. Next is our Q&A time. The first question, Xiaopo of Citibank.

[Xiaopo Wei, analyst]

Greetings, Mr. Lin, Ms. Wan and Ms. Gu. Just a question for Kevin Lin. If we look at the past 6 months, there have been major changes. For CGB, it has come down as a growth trend. And compared to 6 months ago, when we communicated, what is the strategy adjustments? Are you slowing down on certain areas or some of the strategies for CGB competition strategies or tactics for surviving the CGB challenge? What are some of the changes or adjustments, please?

And also for the margin, just now it's been mentioned, there is a change in channel mix and also for some of the performance being impacted. So my question is, for channel mix, there is -- one reason is because our off-line is lower than expected, but online is on target. So in the future, what do you think is the margin going forward as off-line continues to increase with less challenge or competition from CGB? What do you think is a reasonable margin, please?

And another question. Recently, there have been new competition from off-line for omnichannel, for supermarkets that are midsized, smaller size, and this omnichannel model sometimes, we think, maybe a knee-jerk reaction. So we have already been in this business for a few years. We have been putting in investment, which is lacking among our competitors. So off-line competition, Mr. Kevin Lin, do you think that this is a long-term trend or do you think this competition is just a spot in the pan, just like the CGB competition?

[Kevin Lin, executive]

Thank you for the good question. I just want to say in terms of strategy adjustments, when we formulated our strategy, the CGB had not exploded so much, and we never thought that the operation will be that challenging in the past few months. So for -- we thought that there will be a 2-digit growth in this area, but it seems it is a negative growth as it turns out. So it is falling short of expectations in terms of its performance for CGB. Especially for Q1, CGB had been crazy in terms of the sector.

And for fresh products, it really has disrupted the market for supermarkets, super stores, et cetera. And with the government policies coming out pinpointing CGB, there had been a lowering of the activity, especially for mid-to-small-sized operators. But the entire market had also become a competition of the biggest operators. And compared to the stores, there are certain advantages. And basically, there have been a 20% or 30% advantages for the -- or the increase in the sales for some of these major stores. So because of the major operators, their fulfillment capabilities and their back-end service is better and therefore, they have increased in the market share. So to us, there has been an impact. In this area, we have done a few adjustments. First of all, in the beginning of the year, we told investors that for [indiscernible], our own platform, we have a certain business plan. It was to be built into a big scale operation -- But with the major operators coming into the fray, into the competition, we thought burning money, cash was not meaningful. So we have changed our strategy.

For RT-Mart, it will be transformed. From the 1 hour delivery, there will be a new fulfillment strategy. We will have a 3D different fulfillment strategy. For example, 1 hour for fresh and vegetables and also different delivery strategies for the -- our fulfillment strategies for the other products. So from the CGB, we have -- we're transforming it into a store-based operation. And also, we are adjusting our strategy, for example, in providing supply chain service to Alibaba and becoming a core supplier of their supply chain. And in the past period of impact, we have found new development outlet for this business, so that it has not caused us major losses despite these challenges. And we are able to find a supplement to our operations. And it is very important for our continued operation in this area. And it is very important for our continued operation in this area.

A third factor is the store growth policy for RT-Mart and RT-Super. For the large stores, because of our competitors, they have not been performing well in the past period nor have us. Because off-line retail is, in a sense, oversupplied. And within 3 to 5 kilometers radius of the major stores, we will have to take a few years in order to be able to beat our competition within the neighboring radius area and be able to excel and be successful. So what we are doing is to lower our growth for the RT-Mart and we want to be able to come up with a model of development, a model for our RT-Mart, which is replicable.

And we are also building for future growth. So even though performance, we have come under pressure, but we fully believe and trust that retail will be a major sector of growth in the China market in the half year. From the universities, we have recruited 1,500 graduates and they have been put into different training programs, and this is a young team, which will be building the foundation for the future. And for our senior management, I have come to the position for exactly 1 year. And we are building a core -- with our core team, a mutual trust. And our core senior team, in terms of the transition, has been smooth. For mid-level staff, every month, we have a head -- business heads meeting for progress and for review of the market. So this is in reply to your first question.

And for your second question about future profitability, while profitability has come down a bit this period because of our channel mainly and apart from that, our B2C and our 1-hour delivery, the gross margin are decreasing because in the past half year, there has been fierce competition and also our online sales as well. It was 10%, and it was before. And in the past half year, it was only 5% in terms of our overall growth. And the overall situation is, for example, for B2C service, there has been a lowering of profits, but we believe, in the next period, we will be going back to normal for B2C profits.

As for B2B business, gross margin is relatively low. And overall speaking, offline, we want there to be continuous development and growth. And online, we want to be able to grow that and also have it become a supplement to our business in the next 1 to 2 years. Channel will continue to be transformed, but there will be a balance or optimal point with new products and also supply chain innovation. We think that Sun Art will continue to be a leader in the industry. And also, we will go back to our original or normal profitability. This is our goal. That's right.

And also offline to online. Right now, we -- for the off-line sales, for example, for each of the stores, if the per ticket size is not big enough, you cannot actually feed a quick pick warehouse. But without quick pick warehouse building, you have the entire store to pick products or supplies and the efficiency of the stores would be low. So these quick pick warehouses will have to be built. Now we also have the conveyor belt technology. And the RT-Mart had come up with our own conveyor belt system. It was transformed from the original store scenario. The stores are very big and also the technology as a result and design would be more complicated.

And to -- for the other competitors to invest and also to come up with a design in the short term is challenging. So this is not just about opening up a new outlet and then do business but also in digitalization, in supply chain and coordination. It's overall. So I think the barrier to competition is relatively high. So this retail revolution, I think, will be impactful for the industry, and we're very happy to hear that for our RT-Mart, we have closed 2 stores because the lease cost is too high or overall, in the neighboring area, it is -- it does not sustain the business. But we still believe that RT-Mart, we will continue with our steadfast commitment to quality. And overall speaking, we will be stepping out of the severe winter. And as the market goes back to normal, Sun Art will be able to grow even further.

[Operator]

[indiscernible] Bank of America Luo for next question.

[Chen Luo, analyst]

Kevin, Desory and Xiaobei, I have a question. Just now, we noticed that you have mentioned that the traffic for the first half had been positive and also second quarter is also positive in terms of sales. When you talk about same-store in terms of traffic and also for first quarter and second quarter, what are some of the trends, if you can compare them, please? And also, for same-store changes and also for the second half, what are some of the same-store changes or trends that you can spot?

Just now, it has been mentioned that we are cooperating deeply with Alibaba in terms of supply chain. Can you talk about, in the first half of the year, how it had contributed to our sales? And for this sector of the business, from an economics point of view, what is its profitability? What is its rate of profit, please? And also for Alibaba's CGB business, in the past few months, it has been growing. I think. Can you share with us in the second half of the year, what is the prognosis for expectations or growth was some of the strategies for this sector of the business, please?

And also, we understand the risks and also the adjustment period that the entire sector industry is going through. So it's difficult for you to give an exact guidance. I can understand that. But can you give a judgment as to this moment business situation? And based on that, give us perhaps a quantifiable guideline for profitability going forward, let's say.

[Desory Wan, executive]

For the first half financial year, for the first quarter and the second quarter for traffic and also ticket size, from April to June, for instance, our traffic same-store is a positive growth. Positive 3.6% to be exact. For our CPI, it is a great impact, especially for January to March CPI compared to last year's epidemic time. And also for July to August, there has been the epidemic rebound and also for the overall fresh products, and it has also, because of fresh products, it has also increased our -- it has impacted our ticket size. So for June -- April to June, it is a negative 12%. As for July, August and September, July traffic is positive 7.7%, but ticket size is still negative.

And in August, there have been 2 impacts. One, epidemic instability or rebound and also pork price. In August, the traffic and also ticket size have both decreased. And September, the traffic and also ticket size have both increased. So for Q3, overall, traffic is negative 2% and ticket size, as CPI, the base continue to climb back up and also it is not as fierce in terms of competition and as before. And ticket size, we have done a lot of -- taken a lot of action. And therefore, it's a 0.5% for ticket size for September. So for the -- overall, it is negative 7.4%.

And for the first half for the Alibaba supply chain cooperation, the most important is that both sides, in terms of business, we are integrated. And in cooperation, we are going deeper as well. So for CGB contribution, it is relatively low still. For the entire year guideline, I should -- for the second half financial year, we have to look at the epidemic situation. These 2 days, it has rebounded again and it depends on where it is happening. In August, for example, it was in Jiangsu province, which is our main area of operation. Whether it is the traffic or overall business, it has been negatively impacted. And that is the reason why in August, our same-store growth has been dropping. And this is an uncertainty factor. In the second half, it may still hit us and also for external competition changes. And also the state of the nation and its policy, any changes there? Or these are factors for the second half.

For sales growth in the second half, our expectation is that we hope that it will be stable compared to same period of last year. That is the second half. And for net profit, as I have mentioned, in the first half, our net profit has been RMB 100 million. And at present, the 2 reporting period comparable figures, we can see that for last year, the second half, it was RMB 1.3 billion or so. And on this basis, we will normalize the impact from last year. For example, last year, we had RMB 130 million, which was impacted by government policy, that is concessions and grants. So that was a base. And in taking that away, it should have been a RMB 120 million or so. And we will continue to put in investments into channel mix and also in traffic increase. And we will have RMB 200 million in terms of new business investment.

And also for channel mix impact, it would be RMB 140 million or so. So given this, we may have increased impairment provisions, which is RMB 100 million or RMB 50 million in terms of onetime impact. So this is how we see the second half. Overall, for the entire year compared to last year, that -- first of all, last year, because of epidemic factors, the impact was RMB 500 million. So overall, it was RMB 1.7 billion to RMB 1.8 billion. And also, as mentioned, with our investment into traffic and also to marketing, we continue with those assets as we did with last year. And channel mix and its impact on net profit would be about RMB 250 million. And on this basis, we believe for one-off impact for the entire year, it will be RMB 215 million, and that includes our impairment provision. So this is the overall expectation for the entire year.

[Operator]

Next question from Jefferies.

[Unknown Analyst]

Greetings. For second half and the -- given that in the past 2 years, in terms of government policy on staff cost, what do you think will be the staff cost impact going forward? That's my question. And for delivery, we see that the government had also come up with a policy concerning social welfare protection and there may be more provisions in this regard. So my question is, I don't know how does this impact our online business. If there is impact in the future, we will be collecting delivery cost or delivery fees?

[Kevin Lin, executive]

Thank you for your question. It is true that in the past few months, we have received from the government in various provinces and cities adjusting the policy in this regard. We continue to be steadfast in our policy and strategy. Where there is direct revenue, we will be providing higher staff pay. So we are adjusting the pay for our staff gradually. But it is a huge cost burden for the company. So as we do this, we are also pushing forward a flexible HR system, and that is through the different stores procedures, efficiency increase and also digitalization. We are increasing our management and staff capability. Our overall cost is controlled in our overall range, slightly higher than last year. In self cost, in the first half compared to last year, normalizing for epidemic, it is relatively stable. And as a percentage, it is also relatively stable from last year.

We will continue to be paying attention to staff cost increase, but the efficiency of per staff have been increasing as well. So for this financial year, for the rate for staff costs, we continue to want to keep it stable. As for delivery cost in the entire delivery service sector, for policy and compliance, the cost for delivery may increase, but we would want the customers to come to the stores actually. It is good for the -- for our company. Because when we come -- they come to the stores, they actually would feel the shopping experience. When they shop from their homes, of course, it is convenient and also they're shopping from home, but it is an impact on our physical stores.

Overall, we still want to create reasons for coming to the stores, because offline or ticket size is definitely much higher than online ticket size. And also the fulfillment for off-line is much lower in terms of fulfillment costs in online. And also B2B business in our -- in this area of our business, for instance, we have not received any government policy or adjustment or our delivery or our delivery service saying that they will adjust the fee, et cetera. So going into the future, will there be adjustments. This is -- hinges on the overall market situation. As for delivery charges, whether we will charge delivery fees, we are steadfast in the sense that we will become, for the store warehouses, et cetera, and related operators, we will be the last to charge such fees.

[Unknown Analyst]

Another question for the first half and second half, how do we compare in terms of -- let's say, for the first half, there have been -- there are more festivals. So Spring Festival and the New Year and also in January, traditionally, there will be some volume rebate, right? So in the second half, can you project on the margin? And the -- basically, the operating margin, would it be better than the first half, given these factors, please?

[Desory Wan, executive]

This will be a new financial year. So the first half and second half mix are different. For the new financial year, for the first half and second half, revenue would be 45% to 55%. You are correct in pointing out that December has been a peak time. And for this year, yes, indeed, the second half will be the main revenue income increased time, including the January time New Year. And definitely, second half will be better performance than the first half. As for net profit splits, it would be 30% versus 70%, first half compared to second half.

[Operator]

George of JPMorgan. Next question, please.

[George Hsu, analyst]

I have two questions. The first question, the minority shareholder, it is a positive number. It is a loss and it is a positive number. Is this B2C sales and marketing cost and same new cost? And what is the minority shareholder share, please? In the second quarter, we see that for the financial year for CGB, what is the situation? And what are some of the subsidies? Will that be increasing for -- and also for the extension of store numbers. For RT-Super and RT-Mini, they are about 3 to 5 years to coming to a positive. Are you saying for cash flow positive to 5 years or what?

For minority shareholder, we have some JV companies. Some of the performance of these JV companies have not been good. And for the aggregate of these investments, this is a negative number that you see. And this number is very minor in the overall analysis. My question is, is Feiniu also included in -- or are we 100% holder of Feiniu?

[Kevin Lin, executive]

We are 100% holder, and this is part of our main business. So minority shareholder does not include Feiniu. For Sun Art in China, there have been other smaller cooperation and JVs in the country. So that part is a loss.

[Unknown Analyst]

Question. What about [He Ma ].

[Desory Wan, executive]

Yes, it is a very small figure, RMB 5 million. And you see it is because actually it has always been there. And because our net profit performance. In the past, you have not noticed it. This JV situation had always been in existence.

[Unknown Analyst]

Now I understand.

[Kevin Lin, executive]

And for your second question, B2C for the second half. We believe that for the second half of the year, we should be able to attain 1% of net profit. The overall competition will still be fierce and we have, in terms of fulfillment capability through our service, through our experience at the stores, we continue to extend and increase our business. It is no longer about traffic directing our B2C business. So there will be major adjustments to our B2C business.

So with profitability, we will continue to grow this sector. And for Tmall cooperation, it is our supply chain service business. And Ali will be investing, and we are providing the service only. So there will be net profits coming from this source. So that is why we are confident that for the second half, there will be profitability and also -- sales would also increase.

As for the extension of stores, for 3 to 5 years, we'll be able to have positive cash flow. In the past, opening the first year, we -- after opening, it is already positive cash flow. But now it takes at least 3 years to 5 years because we have to compete for customers with existing competitors who are already operating in these cities. And that is why for the brick-and-mortar stores, we have slowed down the extension of store numbers. Because of the store supply, it is an oversupply situation. And also with the pressure of business, price competition is very, very fierce.

In the next half year to 1 year, a lot more stores may come under pressure for other operators and they may close and we want to look for quality sites for our stores. And at the right time, we will increase the number of our stores. We are also in negotiation with counterparties for 100 sites and signed contracts. It is about 20 sites for stores. So we will find the right site, and we'll continue with our store extension plan at the right time.

[Operator]

Macquarie, Linda. Next question.

[Linda Huang, analyst]

I have one question concerning our operating profit margin. It is 1.3%, I noticed from the reports. I feel that if we take all into account for this rate, which is less than 2%, in the past, our OP has always been 3% to 4% in the past. So how do you see this going forward? Will it be around 2% fluctuating around that without any breakthrough? Will it be that? And also, Kevin had mentioned, for the first half of the year, our 2C business and because of mix changes, there will be about RMB 200 million impact for this year. And going forward for 2B and 2C business, they should be growing rapidly. So for long term, how do you see the next year's mix, it should be about RMB 200 million, right? And how do we see the overall growth trend into the future? That is to say how can you attain a positive growth trend into the future?

[Desory Wan, executive]

This is how we look at it for the first half of the year. All the external consumption and epidemic rebound situation and fierce competition, all these had impacted our omnichannel competition. And so if we look at omnichannel, I'm only looking at the external competition or factors for omnichannel? Or are we looking at the new factors for omnichannel? This is important. For the first half of the year, for instance -- for the first quarter, for instance, Kevin has mentioned just now, for our B2C business, it is at a loss because of huge fierce competition. And in the second quarter, B2C had come to 1% profit margin. And at present, for the entire business, it is -- the entire industry is going on to omnichannel mix. That's for every operator in the industry. And how we differentiate from our competitors is that we have B2B2C as well, that is our contribution to Alibaba and our own B2B business. This is how we are different from our other operators.

It will increase our scale overall. And also in the next half, our half year and the next year, we should be able to cover our channel mix gross profit impact, because we have mentioned, this is about the profits of the entire mix. So our B2B and our B2B2C business put together, it is overall over 15% of the whole. And this 15% -- and definitely B2C margin is relatively lower. And our -- overall, the net profit margin is about 1%, as mentioned in the second quarter.

And going forward, I think our online will be about 40%. If it is at 40% overall profitability coming from online, that would be healthy and reasonable. So overall speaking, for our net profit, we look at net profit. It is now at about 2% because of channel transformation and checking its impact on our net profit, it is at about 0.8% impact. So in the foreseeable 1 year, it will be kept at the same level. And within 1 year, there's 1% net profit. Given our present channel mix, this is what we will be able to attain. And through our product mix enhancements, through our overall operation optimization, we will leverage the B2C omnichannel capability. And in the future, we were coming back to a balanced point. As I've mentioned, delivery, there may be charges. And compared to some of the overseas experience, it is 2% to 3% of the overall. So this is how we see it. And if we take that as a reference, and this is how we see our existing operation and the future projections.

I just want to supplement for profitability. Apart from looking at the past of RT-Mart, we also have to look at our competitors. Our profitability of 1% or at 2%, what is important, it is higher than our competitors, greatly higher. And we are also bringing -- broadening that lead against our competitors as well. The loss from warehouse, front-end warehouse, is 20% to 30% and the CGB is a loss of 30% to 40%. And for us to be able to be profitable at all, I think, is important. So please focus on the difference with our competitor. And also in the future, for us to go back to profitability overall for Sun Art going into the future, it will be because of our online business. Online business is no longer cash-burning. It is sustainable, and it is an experiential consumer business. So our profitability should be able to climb gradually.

And also, we will have 1% net profit from delivery fee-charging. And when that happens, that is delivering fee-charging. A third point is that we continue to push forward our economies of scale. We are still the biggest, the brick-and-mortar store network, and we continue to grow our stores, the operator that has the courage to increase stores few and far between in China. And we are very much keeping close to the overall market situation. Where we see excellent sites, we will spot them and go into them, especially where others have closed and we will continue to grow our size and, therefore, raise our efficiency and to grow our profit.

That is how we will go forward. And also, we will increase our capability in fresh delivery and also to increase our fresh products economies of scale overall. So pricing and also quality at the same time will also be enhanced. All these areas of work are going forward. So with market changes at present, we are fully confident about the future of Sun Art.

[Operator]

Morgan Stanley. Next question.

[Unknown Analyst]

Second half sales expectations and projections. It's 2 digits, you mentioned. Can you talk about it a little bit more? Second, M&A opportunities. It's said that Suning may be selling [indiscernible]. And Suning in the news, it says that Mr. Huang, the owner, is kind of changing tech. So will you become a consolidator in the industry? Third question, according to my understanding in the past for some of the areas in the galleries and the RT-Mart, the lease income had been different from the present. How do you see this going forward? Will the profit be impacted with your changes in tech in these large RT-Marts and the lease income?

[Kevin Lin, executive]

For the second half, we did not say we project double-digit growth. We did not say that. We are saying that we will keep stable. For MNC, it provides us with single-digit contribution. And it will be a 5% to 6% decrease overall. And for the third quarter, off-line, it will be stable. And online, there will be -- online, there will be increase -- double-digit increase. And that's for second half. And the market situation is overall challenging. We are putting in a lot of assets. It's difficult, but only time, if the situation continues for one year I think it will be good for consolidation of the industry because our cash is still ample, and we are still profitable and our organization capability is good.

So I think the consolidation going forward, I'm very full of hope for it. You mentioned M&A. RT-Mart serves the mass consumers and it has to have size and economies of scale to be profitable. And you have to look for increased size. So we may be looking at M&A opportunities. But in M&A, for nationwide hypermarkets, we are not interested in those because for nationwide hypermarket capabilities, they overlap with the capabilities of our own RT-Mart. Perhaps we can only be adding sites. But even the sites overlap with RT-Mart. So I don't think it is attractive as assets for us. But rather, we will be looking at the regional operators. The smaller operators, perhaps they can complement us in the specific regions. They may know the consumers better and also they may have supply chains for fresh products. So we're more -- finding it more attractive in that regard.

As for FMCG and also our organization capability, I think for RT-Mart, perhaps there is more synergy with the smaller regional operators. So we -- but we will be cautious in our consideration for acquisition. And Mr. Huang is the nonexecutive Director or Chair for Suning. Mr. Huang, you mentioned is the just nonexecutive and -- for Suning. And we're not commenting on Suning. And also, in the past, it has been traffic bringing on cash flow, but we will be kind of changing that strategy. For our RT-Mart, most of the transactions have been attracted by entertainment and et cetera. And the -- we will continue to transform our attractiveness in the galleries. We want the galleries to become activity centers, to be attraction of traffic centers, where the neighbors living in the neighborhood areas, they want to take a walk. They come to the gallery. And so the transformation of gallery, apart from the tenants mix change, also for the integration and complementary relationship with our members and also our stores and hypermarkets, we want to be able to focus our energy on that as well in the second half.

[Unknown Analyst]

A follow-up question on the severe winter. You said that if it's longer, perhaps you will have more opportunities against your competitors. So may I ask, in terms of loss or close store situation, how do you see this? I think this severe winter is different from 2018. At the time, He Ma et cetera, were still able to raise prices, but not so far this year. And we see that this quarter, there are other competitors who had already burned RMB 5 billion, RMB 6 billion in 1 quarter. And this is unprecedented. So how do you see these mid- to smaller-sized superstore networks? Some of them are already closing or going bankrupt or how is it panning out for the industry?

[Kevin Lin, executive]

I think everybody is putting in effort as the -- but some of the new policies and transformation of these competitors are making them bleed more. For example, many of the hypermarkets are closing among our competitors. Regional retailers are also closing and the front-end warehouse, some of them are losing -- making huge losses. This is partly because of no delivery fees charged. So we are nurturing consumer behavior to come to the stores. And for those which are not sustainable, when they exit the industry, the consumers will come to us because we are the most viable network and system for stores. So that is why I say that the severe winter is putting pressure on us, but it will give us more opportunity of further development to the future.

After the severe winter, because we are so prepared, we'll be the first to come out of this. We have the most number of sites and the consumers, once it is warm again, they will come to us, and we are the best prepared for the returning of the spring.

[Operator]

[indiscernible] Next question.

[Unknown Analyst]

I have a question. Someone asked a question about same-store analysis just now. I just want to ask for same-store trend and CPI, et cetera, as you are in the forefront. How do you see CPI trends?

[Desory Wan, executive]

In October, for same-store situation, it is low single-digit change. In October, especially these 2 years, October has been impacted by the double 11 festival and the inventory buildup. And also, the -- for this year, there's only 1 festival opposed to 2 festivals, the National Day and mid-autumn last year. And the third to fourth weeks of October, people are waiting for double November. So that affects the October performance. And further, at present, overall CPI, going forward, I can see, it will come from its low level to slowly climb up for CPI.

And for FMCG industry, a lot of voices have been heard that they will be raising prices. For FMCG size, we are the biggest in the industry. We are the biggest among the retailers for FMCG. So we are very confident with the present situation in our sourcing of products and also bargaining powerful pricing. We are the strongest in the industry. We're very confident about that. And also, because we have this capability, we will be the last to raise prices. So we hope that with our pricing capability, we'll be attracting more consumers to us.

[Xiaobei Gu, executive]

I would like to thank everyone for participating in the financial results announcement, 6 months ended 30th September 2021, for Sun Art Retail Group Limited. If you want further communication with us, please approach our Investor Relations team. Good health to you. Goodbye. Thank you. Thank you for participating. Thank you.