Events:

Recently, we conducted a field survey of the company and communicated with senior executives on the development direction of the company's business and the focus of its future management.

1. Group meal business and high-end catering business 28 exchange to fully open the incremental market.

In April and July last year, the company acquired the "Weizhi" Chinese food chain of Shanghai Qiding and Beijing Londehua Restaurant Management Company for 135 million yuan and 80 million yuan respectively, and increased its investment in Shenzhen Seaport in August. the four major business departments of high-end restaurants, Chinese fast food, group food business and food processing, and the two leading brands have fully settled down, and group meals, fast food and restaurants have achieved complete complementarity in prime time. In the future, group meals and food processing will be crowned with Hunan-Hubei brand, high-end catering and Chinese fast food will continue to use Hunan-Hubei brand and flavor capital brand respectively. From the perspective of the development strategy of the four major business lines: go high, protect the middle and low, pursuing the increase of turnover per unit area and the increase of overturning rate is the main key. on the other hand, the industry differentiation is intensified due to the adverse impact of policy on high-end catering, and the rising barriers of enterprises to be listed on the market provide a good opportunity for the company's high-end catering family transformation, Chinese fast food and group food. Group meal will become the company's largest business department in the future and replace high-end catering as the main business, and the 2008 conversion within five years will become the target.

From the two-way analysis of supply and demand of group meal: the industrialization level of large-scale production, the ability of cold chain logistics and distribution and the whole process control of food safety are the three core competitiveness of group meal business, and economies of scale is the key to profitability. In recent years, group food and beverage in China has developed rapidly, and its market share has accounted for 30% of the overall catering market, while China's group meal market is still in the early stage of marketization. ARAMARK in the United States and SODEX in France, with low market concentration and the main leader, are foreign-funded enterprises, which are favored by high-end customers with standardization, standardization and high quality, but Chinese food business has always been its deficiency. Large and medium-sized customers of group meals are most concerned about food safety, which is also the company's biggest advantage, and the company will be consolidated through the positive infiltration of upstream. The two major group meal companies in the United States and the United Kingdom basically occupy 80% of the market share. Japan and South Korea also account for 60% of the market concentration in the field of group meals (Yale Food in the UK), Green Kitchen Zhengda in Japan, and Express in Taiwan. The largest group meal enterprises in the United States target 1000 customers, while the largest domestic group meals are only 200,300 customers. It will be the trend of the times for Chinese group meal enterprises to catch up from behind and to expand and concentrate their market share.

At present, long Dehua has grown from 20 customers at the time of acquisition to more than 40 at present. Customer contracts are usually signed once a year. In Beijing, they have developed to medium and large customers such as Huawei, hospitals, schools, and so on. In the future, they will expand to the whole country. Acquisition and cooperation are the main means of extension. Compared with traditional catering, group meals need more meticulous management and high requirements for cost control. on the one hand, the form of acquisition is to expand customer resources, more importantly, the excavation of professional teams. As the biggest expansion bottleneck of the group meal business, the company is mainly solved through the original senior business, the sinking of sales staff at the grass-roots level to expand customers, the alternating complementarity of lunch and dinner time, the improvement of robot utilization efficiency and the accelerated supplement of hourly workers. The bottleneck from the production capacity is relatively small, mainly due to the high investment in the central kitchen and the limited radiation radius. The company's central kitchen supports about 1/3 of the saturated workload of more than a dozen stores in Beijing, coupled with the fact that Beijing group meals are at full capacity, and the second phase of the central kitchen is planned to double, and the radiation bottleneck will also be easily solved.

As far as the profit of the group meal business is concerned, the group meal income is mostly hundreds of thousands of management fees, package contracts and self-financing. The price of food is set according to different unit standards, the investment is less, and the biggest cost is labor cost. the ratio of high-end catering backstage services to diners is 1:1. The sharing effect of group meals makes the proportion drop significantly: a project usually has 8 basic workers, while most of the others are hourly workers, mainly through robot cooking, 180000 per machine, 3000 amortization a month, at least 2 robots in each store. Don't pay for water and electricity. The overall profit margin of more than 10% points is slightly higher than that of the catering business.

two。 Xiang-E sentiment brand "go high, protect medium-low" reform turned to "Family JOYY Inc Restaurant".

Hunan and Hubei directly engaged in catering is still the company's main source of income and profit. The adjustment and expansion of the company's direct stores in the past two years have laid the foundation for the release of profits in 12-13 years, and the moderate liberalization of joining and the determination of fixed increase have also reduced the pressure on the company's financial leverage. The number of Hunan and Hubei restaurants reached 27 at the end of 11 years, only 2 new stores were opened in the past 12 years combined with the background of economic policy, and no more than 3-5 new stores were added in the three advantageous areas of Beijing, Shanghai and Wuhan in 13 years. The standardized management in the background is the fundamental driving force for joining and opening up. As of the first half of 12 years, the company's loss-making stores include Changsha, Zhengzhou, Xuanwu and Hefei.

20-30% of the guests in Xiange restaurant boutique are high consumers: more than 500 yuan per capita, more than 3000 per table; 70% of the per capita consumption is 200 yuan. The core of several major reforms of the restaurant is around the two basic points of the decline in the unit price and the increase in passenger flow, thus reducing the high-end proportion from 30% to 10%: first, abolishing the service charge (previously 10%), the minimum consumption and the wine list. In conjunction with Shang Chao (completed in March by the model supermarket in the store) to reduce the unit price of beverages, you can bring your own drinks. Second, do not sell imported high-grade seafood, do not sell more than 300yuan per jin, mainly use domestic seafood to reduce the price of dishes, the proportion of Cantonese food has dropped significantly; the third is to open up a business package at noon to make up for the shortcomings of relatively small flow of Chinese food, about 50 yuan per capita; fourth, it is strengthened to be positioned as a family JOYY Inc restaurant (birthday, wedding banquet, etc.), with free KTV. The transition period of price for volume needs a certain amount of time to accumulate no matter from the brand effect or from the transformation and expansion of target customers. 13 years will become the year of adjustment of Xiange restaurant. However, with the sinking of group meals of high-end service personnel, the reduction of raw material costs and the gradual decline of amortization, the increase in turnover per unit area and the stability of gross profit margin will still make up for the stagnation of the overall high-end catering market.

3. The vertical penetration of flavor capital and food processing is in line with the trend of retail format transformation.

The polarization trend of retail formats has gradually infiltrated from first-tier cities to second-and third-tier areas, that is, shopping centers and communities. Food and beverage matching plays a more and more important role in the core element of shopping center. At present, more than 50 Weizhi stores are directly operated stores, mainly distributed in Shanghai, and are still being integrated and upgraded. Hunan, Hubei cuisine and Shanghai local cuisine are the main dishes, with a per capita consumption of 26-30%. After decoration and upgrading and dish adjustment, the turnover has increased by about 20-30%. The future expansion model is still mainly in direct operation, which is also in line with the market pattern of supply bubbles in first-tier urban shopping centers, especially community shopping centers. The first store in Beijing opened in Wantong (profitable during the year), which competes directly with Hehegu, which has 60 terminal networks in Beijing, but unlike Hehegu and Yoshino, which are mainly through factory-oriented on-site sub-hot work flow, the company uses robots to stir-fry Cuikou green leafy vegetables that are missing in Chinese fast food into finished products, which greatly improve the quality of Chinese fast food.

The superior optimization of raw material infiltration in food processing is represented by the strategic cooperation with Longyuan. Based on the asset-heavy investment nature of food processing, cooperation or acquisition is still the dominant infiltration mode, which is also conducive to the company's control of food safety. And Hunan and Hubei brand braised pork, Yu-Shiang Shredded Pork and other open-bag ready-to-eat dishes are also about to be put on the market, and community convenience stores are the main expansion channels, which on the one hand accords with the development prospect of the blue sea market of first-tier community commerce; on the other hand, it has also achieved accurate positioning for the quality and simplified catering needs of young white-collar workers. This year's Spring Festival has completed the distribution of plateau troops with far-packaged New year's Eve dinner.

Conclusion:

At present, Xiange has become a multi-brand catering enterprise with vertical extension of industrial chain and comprehensive coverage of high, middle and low-end Chinese food. Whether it is the turn of its fast food and group meal business or the integrated excavation of the industrial chain, it is in line with the general trend of the catering industry itself, the peripheral retail industry and the economic environment. Although the transformation of the brand and business will go through a certain period of labor pains, the company's earlier strategic layout and the rapid growth of the acquisition business (both projects are expected to increase by 50%) may shorten the negative impact of the decline in high-end catering on the company. The large-scale reduction of the chairman's holdings is the risk factor of the company's stock price in the medium term, while the quarterly report becomes an important short-term risk factor of the stock price under the dual influence of high base and high-end business undertaking vacuum. The full release of the two is a good time to lay out the transformation value of the company. We estimate that the EPS of the company from 2013 to 2014 is 0.39 yuan and 0.48 yuan respectively, and the corresponding PE is 24 times and 19 times respectively. Considering the large market space brought by the company's transformation and the gradual setting of the integration effect of acquisition, it is given 27 times PE in 13 years, corresponding to the target price of 11 yuan in 6 months, which still has an increase of 14% from the current price, and a "recommended" investment rating is given for the first time.

Risk Tips:

1. The impact of executive reduction on stock prices.

2. The risk of food safety and high-end catering continuing to decline.

3. The company is in the transition period of high and low catering business, and the negative effect of high-end catering on the quarterly report is far greater than that of group meals.