CITIC Securities has released a research report stating that PAGODA GP (02411) is expected to return to growth by 2026. This outlook is based on the company's planned store network re-expansion, cost reductions enabled by AI, and the expansion of its 2B business and new "fruit + snacks" format. The report suggests the key investment theme for 2026-2027 has shifted from survival concerns to the pace of profit recovery and potential valuation re-rating, with the valuation benchmark expected to rise rapidly. The firm maintains its 2026 EPS forecast at RMB 0.01 and introduces new forecasts of RMB 0.09 and RMB 0.12 for 2027 and 2028, respectively. Considering the company's active exploration of cross-category business adjustments, CITIC Securities applies a 2026 price-to-book (PB) ratio of 1.7x, deriving a target price of HKD 2.9 and upgrading the stock rating to "Buy".

The report highlights that an operational inflection point has been reached, signaling an imminent restart of growth. For the full year 2025, PAGODA GP reported revenue of RMB 8.174 billion, with the second half achieving a net profit attributable to shareholders of approximately RMB 25 million, marking the establishment of a turning point. By the end of 2025, the store count stood at 4,468, with a net addition of 82 stores in the second half, reversing the previous trend of continuous closures. Both order volume and gross profit from existing stores achieved mid-single-digit growth. The company has clearly outlined a plan to open a net 200 new stores in 2026, utilizing its dual-brand strategy of "PAGODA" and "Guoduomei" to cover multi-tier markets. CITIC Securities views 2025 as the concluding year of the company's adjustment phase, with 2026 poised to be the starting point for a return to a growth trajectory. The most critical change is not merely a return to annual profitability, but the systemic improvement observed in three core variables: the store model, franchisee returns, and operational efficiency.

The strategic transformation has shifted from "aggressive expansion" to "deep restructuring". During 2024-2025, the company proactively closed over 1,600 underperforming stores, reducing the total from a peak of 6,081 to 4,468, following a strategic path of "clearance first, repair later". In the second half of 2025, the gross margin recovered to 10.0%, labor costs decreased by 20.3% year-on-year, and selling, general, administrative, and R&D expenses all contracted. The franchise ecosystem was simultaneously rebalanced, with the initial investment per store reduced to approximately RMB 230,000, lowering the cost for franchisees. The core achievement of this adjustment phase is not simply stopping losses, but the company's shift in store evaluation from "whether it is open" to "whether it is profitable". The most challenging phases of clearance and profit model reconstruction are largely complete, with the second half of 2025 marking the true start of a new cycle.

The core To C business is being reshaped, with a "quality-value" perception gaining traction among consumers. The company has segmented its core fruit offerings into a dual-driver model of "traffic-building products + profit-generating products". Marketing campaigns have successfully driven store traffic, while operations of high-margin fruit items have been enhanced to repair profits. Store order volume maintained mid-single-digit growth in 2025, with signature and A-grade fruits accounting for 62% of retail sales. The membership base grew to 95.3 million, and sales from users in over 32,000 private community groups exceeded RMB 4.5 billion annually. The report concludes that PAGODA GP has successfully transitioned its single-store model from being "average-order-value driven" to "traffic x structural optimization driven". This fundamentally addresses the market-perceived conflict between "high quality" and "high cost-effectiveness" for a fruit specialty retailer. The retail foundation is now moving from a phase of "loss-cutting contraction" into one of "quality-driven expansion".

The benefits of technological enablement are being realized, with AI becoming the fundamental operating system for renewed expansion. In 2025, the company's AI system formed a four-layer closed loop. This includes POS 2.0 with AI product recognition reducing labor dependency, intelligent inventory management optimizing shrinkage and turnover for over 3,000 stores, AI store diagnostics providing over 200,000 precise recommendations annually, and a "Fruit Knowledge Large Model" digitizing over two decades of operational experience. The effects are directly visible on the income statement, with labor costs down 20.3% and administrative expenses down 38.3% year-on-year. The report posits that the value of technology investment is no longer just a cost-cutting tool; it has made PAGODA GP's operations "lighter, traceable, and replicable". The maturity of this system will provide the organizational capability to ensure that new store openings are stable and profitable, serving as key infrastructure for the transition from adjustment to high-quality growth.

Multiple growth drivers are sequentially materializing, opening up platform-based growth potential. PAGODA GP's growth logic has shifted from pure store expansion to a multi-driver model involving "retail foundation repair + To B supply chain spillover + new format pilot operations". To B revenue reached RMB 1.26 billion in 2024, up 21.7% year-on-year. The company has announced it will fully open its fruit supply chain in 2026, integrating upstream via "orchard contracts + graded sales" and distributing to external channels like supermarkets and snack retailers. More significantly, the company has initiated pilot operations for a "fruit + snacks" business segment. CITIC Securities estimates that if this model proves successful, it could contribute substantial incremental revenue starting from the second quarter of 2026. This platform-oriented direction is seen as gradually transforming PAGODA GP from a single-category fruit retailer into a multi-scenario food retail and supply chain service provider, which is considered the most leveraged way to capitalize on its deeply cultivated fruit supply chain expertise.