Core views

1. Revenue, performance and financial conditions have been under pressure in recent years. The company's revenue and net profit have shown a downward trend since 2017. At the same time, ROE and ROIC, gross margin and net interest ratio, and net operating cash flow have all shown a certain decline. Overall operating pressure in the past two years has been under pressure, which is related to increased competition on the Chinese food circuit and the limited effects of the company's own expansion;

2. The company actively reforms and innovates. In recent years, the company has actively sought ways to reform and innovate, including actively expanding stores while optimizing layout, innovating dishes and products, enhancing platform capabilities, and improving management systems. At the same time, actively broadening the track and cooperating with large-scale conference events to achieve certain results;

3. Time-honored brands still have strength, and the new era needs to be actively empowered. The company has the brand power of an established restaurant brand. In the new era of catering development, it needs to be deeply empowered, and the overall development direction needs to be in line with the direction of reshaping competition barriers in the catering industry. Focus on the company's digital transformation, management and incentive system innovation, broadening the catering circuit, enhancing the ability to expand stores, etc., and the effects of deeply empowering the brand;

4. Diversion of the opening of Universal Studios. The opening of Universal Studios Beijing has a diversion effect on Quanjude, which is more mature in operation in the Beijing region, and is expected to boost the output value of the restaurant industry.

5. The impact of the epidemic has been significant in the short term, and the restaurant industry may clear up the supply side. The epidemic is expected to have a major impact on the company's performance during the year. In 202001, the company's revenue side fell 55.03%, and Guimu's net profit fell 931.66% year-on-year. The impact was obvious. The company's cash flow has also been impacted, but the funding situation is expected to be sufficient to cope with the impact of the pandemic. The catering industry has been hit hard by the epidemic, and companies may benefit from supply-side reforms.

Profit forecast: The company's net profit in 2020-2021 is expected to be 5.34 million yuan and 80.2 million yuan respectively, and the corresponding EPS is 0.02 and 0.26 yuan. The current stock price corresponding to PE is 600X and 40X respectively, giving an “increase in holdings” rating. A target price of 14 yuan was given for 6 months.

Risk warning: The impact of the epidemic continues; food costs are rising; brand innovation falls short of expectations; food safety issues, etc.; store expansion falls short of expectations, etc.