Performance review

The 2021 results are in line with previous profit warnings

The company announced its 21-year results: revenue +12.7% year-on-year to 6.15 billion yuan (Xiabu Restaurant revenue +1.2% /Minato Minato revenue +39.3%). Guimu's net loss was $290 million (net profit of $1.84 million in 2020), mainly due to the deleveraging effect of operations under the pandemic, one-time loss from closing stores (about $140 million), and deductions from some existing stores with poor performance (about 120 million yuan). The performance is in line with the profit warning. As of the end of the year 21, the company owned and operated 841 Xiabu stores (52 newly opened and 229 closed) and 183 Minato Minato stores (43 new stores opened). The turnover rate of Xiabu Restaurant in '21 was 2.3, and Minato Minato's turnover rate was 2.5 (all the same as in 20); Xiabu Restaurant's same-store sales were -8.3% year on year, and Minato Minato's same-store sales were -0.9% year-on-year.

Development trends

Pay attention to the epidemic and control trends; brand recovery and performance are under pressure. Since March, there has been an outbreak of the epidemic in many parts of the country. Shenzhen has completely stopped dine-in restaurants since 3/12, dine-in restaurants were opened in an orderly manner with a 50% flow limit i from 3/21, and restrictions were relaxed to 75% ii on 3/28; Shanghai implemented nucleic acid screening III in batches using the Huangpu River as the boundary from 3/28. In the long run, we believe that the general trend of marginal optimization of control measures will not change (such as the liberalization of self-testing of antigen detection reagents, introduction of new diagnosis and treatment plans, etc.), but there is great uncertainty about the impact of repeated outbreaks in the short term. We estimate that in January-January '22, the Xiabu brand and the Minato Minato store recovered to over 80% in the same period in '21, and there is still a certain gap from the level in '19; since March, the impact of the epidemic on the recovery process has been obvious. Looking ahead to 1H22, we expect the pandemic to put some pressure on brand recovery and performance.

The brand's internal adjustments are still ongoing, and the results are yet to be verified. The company's brand adjustment measures mainly include: 1) Expansion strategy: the Xiabu brand will focus on developing the East China and South China markets to control rent bargaining in site selection; Minato has partially sunk to the second and third tier based on the brand power of first-tier cities and continues to expand overseas (opening its first restaurant in Singapore in early '22). 2) Brand and model: Xiabu brand 2H21 relaunches the cost-effective model. The customer unit price is 50-60 yuan, and the menu is upgraded and enriched; the company plans to launch a new version of Xiabu X this year. Minato has targeted a “new middle class” and will share points through the Xiabu brand membership system. 3) Employee motivation and organizational management: 2H21 introduced a new incentive mechanism to include operating profit in the team's KPI assessment. At the group level, functional teams were integrated from 15 to 10; at the regional level, the Xiabu brand expanded from 6 divisions to 22 subdivisions, Minato expanded from 6 divisions to 12 subdivisions, and the reporting level was flattened from level 5 to level 3 to improve organizational management efficiency.

Profit forecasting and valuation

Carefully considering the impact of the pandemic, the 22-year profit forecast was lowered by 20% to 130 million yuan, and the 23-year profit forecast was lowered by 4% to 330 million yuan. The current stock price corresponds to 27 times the 22-year P/E and 11 times the 23-year P/E. Considering that the effects of the Xiabu brand adjustment have yet to be verified, and Minato Minato's opening space is still uncertain, the neutral rating was maintained, and the target price was lowered by 10% to HK$4.5, corresponding to 32 times 22 P/E and 12 times 23 P/E, with an upward margin of 19%.

risks

The recovery of the Xiabu brand fell short of expectations, the Minato brand's growth fell short of expectations, and the effects of the adjustment measures fell short of expectations.