CITIC SEC: PAGODA GP (02411) Turnaround in Dilemma, Rating Upgraded to "Buy" with a Target Price of HK$2.9

CITIC SEC released a research report stating that looking ahead to 2026, with the expansion of PAGODA GP (02411) stores, AI empowering cost reduction, the expansion of 2B business and the new business format of "fruits + snacks", the company is expected to return to growth. The bank believes that the investment theme for 2026-2027 has shifted from "can it survive" to "how quickly can profits be restored, how far can the valuation switch", and the valuation center is expected to move up rapidly. The bank maintains the company's 2026 EPS forecast at 0.01 yuan, and increases the 2027-2028 EPS forecast to 0.09/0.12 yuan. Considering the company's active exploration of cross-category business portfolio adjustments, the bank gives the company a 2026 P / B ratio of 1.7 times, corresponding to a target price of 2.9 Hong Kong dollars, raised to a "buy" rating. CITIC SEC's main points are as follows: The turning point in operations has arrived, and the growth channel is about to restart The company's full-year revenue in 2025 was 8.174 billion yuan, with a net profit attributable to mothers of approximately 25 million yuan in 2H25, marking the establishment of a turning point in operations. By the end of 2025, the company had 4,468 stores, with a net increase of 82 stores in the second half of the year, reversing the trend of continuous store closures; both the order volume and gross profit of existing stores achieved mid-single-digit growth. The company has clearly planned to open a net of 200 stores in 2026, covering multiple levels of the market with the dual brands "Baiguoyuan + Guoduomei". The bank believes that 2025 was the year of adjustment for Baiguoyuan, and 2026 is expected to be the starting point for returning to the growth channel. The most important change now is not whether the annual profit turns positive, but that the core variables of store model, franchise return, and operational efficiency have undergone systemic improvements. Strategic transformation: from "aggressive expansion" to "deep restructuring" From 2024 to 2025, the company actively closed more than 1,600 inefficient stores, reducing the number of stores from a peak of 6,081 to 4,468, following the strategic path of "clear out first, then repair". The gross profit margin in 2H25 recovered to 10.0%, with a year-on-year decrease of 20.3% in labor costs, and a comprehensive reduction in sales, management, and R&D expenses; the franchise ecosystem simultaneously rebalanced, with initial investment per store falling to about 230,000 yuan, and franchise costs decreasing. The bank believes that the core result of this round of adjustments is not simply "stop-loss", but that the company has shifted store assessment from "whether it is open" to "whether it is profitable". The most difficult phase of clearance and profit model rebuilding has basically passed, and the second half of 2025 is truly the starting point for the new cycle. To reshape the basic skills of the company, accelerate the accumulation of "quality-price ratio" mindset The company has divided core fruit products into "customer flow products + profit products" with dual drivers, using activities such as "Good Fruit Repayment" to drive store visits (with total sales of 524 million yuan and exposure on the entire network exceeding 957 million times), simultaneously promoting the operation of high-profit fruit products to repair profits. Store orders in 2025 maintained mid-single-digit growth, with signature fruits +A-grade fruits accounting for 62% of retail sales, and membership increasing to 95.3 million people; private community groups totaled 32,000, with community users contributing sales of over 4.5 billion yuan per year. The bank believes that Baiguoyuan has completed the transition of the single-store model from "customer-driven" to "customer flow x structural optimization-driven", fundamentally solving the perceived conflict between "high quality" and "high value for money" in fruit specialty stores by the market. The retail basic skills are transitioning from "stop-loss contraction" to the "quality-based expansion" phase. Consolidated fulfillment of technological empowerment, AI becomes the underlying operating system for restarting expansion In 2025, the company's AI system formed a four-level closed loop: POS 2.0 + AI commodity identification reduced reliance on labor, intelligent ordering covered more than 3,000 stores to optimize loss and turnover, AI store diagnosis provided over 200,000 precise diagnoses per year, and the "fruit knowledge big model" converted over 20 years of experience into a digital knowledge base. The results are directly reflected in the profit and loss statement: labor costs decreased by 20.3%, and management expenses decreased by 38.3% year-on-year. The bank believes that the value of technological investment is no longer just a cost reduction tool, but makes the operation of Baiguoyuan become "lighter, traceable, and replicable". Its maturity will provide organizational capability protection for the new round of expansion, transitioning the company from an adjustment period to a high-quality growth phase. Multi-dimensional growth strategies are gradually being implemented, opening up platform-based growth space Baiguoyuan's growth logic has shifted from simple store expansion to multiple drives of "repairing retail basic skills + To B supply chain overflow + new business format trial operations". To B revenue reached 1.26 billion yuan in 2024, a year-on-year increase of 21.7%; the company has clearly stated that in 2026, the fruit supply chain will be fully opened, integrating upstream through "collaborative orchards + graded sales" and distributing to external scenes such as supermarkets and snack channels. Even more imaginative is that the company has launched a trial operation of "fruit + snacks" branches. The bank predicts that if the model runs smoothly, it is expected to contribute significant incremental growth from the second quarter of 2026. The bank believes that this platform-based direction will gradually shift Baiguoyuan from a single-category fruit retailer to a multi-scene food retailer and supply chain service provider, which is the most leveraged way to open up the fruit supply chain that the company has been deeply cultivating for many years.