CICC: The differentiation in the retail sector continues to intensify, and the prosperity of trendy entertainment is further increasing.

CICC released a research report stating that the performance differentiation in the retail sector in 1H24 continues to intensify, with the trendy play sector benefiting from the demand for self-indulgence consumption and brand expansion overseas. In Q2, the prosperity level further improved, with leading companies achieving better-than-expected growth both domestically and internationally. In the human resources service sector, traditional employment and recruitment demand weakened in Q2, but structural changes in employment and increasing flexible employment brought about structural growth. The department store and supermarket sector as a whole is under pressure, with companies reducing costs and undergoing restructuring. Looking ahead to 2H24, the focus will be on leading companies in the trendy play sector and other thriving areas, as well as leading companies with attractive valuations actively promoting change. Trendy play and new economy: benefiting from experiential consumption demand and high-quality new product supply, the trendy play sector in China maintained high prosperity levels, with POP MART and MNSO's mainland revenue in 1H24 and Q2 increasing by 32%/18% and 260%/35% respectively overseas. Leading companies actively expanded into overseas markets, with strong performance in key markets such as the United States and Southeast Asia. Human resource services: although there is some pressure in the recruitment industry in Q2, the flexible employment industry has counter-cyclical properties, supporting leading companies' solid growth. The overall employment structure continued to evolve, with the sector's revenue/profit in Q2 increasing by 14.8%/11.4% compared to the previous quarter. Department stores and supermarkets: the revenue/profit of the supermarket sector in Q2 decreased by 0.6%/26.9%, with some companies optimizing operations through store closures and restructuring. The revenue/profit of the department store sector decreased by 5.5%/46.9%, with a continuous pressure on profits. Fund holdings: in 1H24, the allocation of commercial retail sector holdings decreased by 0.41 percentage points. In terms of heavy positions, leading companies with abundant location resources and business innovation vitality remain popular choices, such as Wangfujing Group, Zhejiang China Commodities City Group, and Chongqing Department Store. In terms of repositioning, mutual funds have increased their holdings in assets with stable performance and active operational adjustments, such as Zhejiang China Commodities City Group and Dashang Co., Ltd. Valuation and Recommendations: recommend 1) leading companies in the trendy play sector, such as POP MART(09992) and MNSO(09896), which are driving growth both domestically and overseas; 2) leading companies in the department store and supermarket sector actively upgrading their business formats and store operations, recommend companies with strong operational capabilities like Chongqing Department Store(600729.SH) and Yonghui Superstores(601933.SH); 3) leading companies in the human resource service industry with clear first-mover advantages in flexible employment business and potential for digitalization, recommend Beijing Career International(300662.SZ) and FESCO Group Co., Ltd(600861.SH). Risk factors: intensified industry competition, slow progress in restructuring, overseas expansion falling short of expectations, and policy and regulatory risks.