Core views
The company's 2022 performance was mainly affected by the ongoing pandemic and exchange losses during the year. Overall operating performance was in line with expectations, and revenue and fee control showed resilience. The degree of implementation on the store opening side is relatively good. The operating efficiency of the new brand and the opening of the store have exceeded expectations, which is expected to be an important second curve.
The company continues to focus on core categories, adheres to a multi-brand style of play, and continues to promote supply chain construction and empowerment, benefiting from segmented brand advantages and expansion space.
occurrences
The company released its results for 2022, achieving revenue of 4.06 billion yuan in 2022, a decrease of 4.2% over the previous year, and the net profit of the mother was 49.28 million yuan, a year-on-year decrease of 85.5%.
Brief review
Annual revenue was resilient, and performance was hampered by the pandemic and exchange losses
The company's revenue in 2022 fell 4.2% year on year. The decline was limited, showing strong resilience under the further impact of the pandemic. Guimu's net profit declined more mainly due to the wider impact of the epidemic in 2022 compared to 2021. More stores in 2022H1 first-tier cities were closed, and the 2022H2 Guangzhou-Shenzhen region was still more clearly affected by the epidemic.
In addition, foreign exchange losses reached 78.8862 million yuan in 2022, while earnings for the same period in 2021 were 178.93 million yuan. The main impact was that the company held cash and deposits denominated in other currencies. There was a risk of foreign currency exchange of related funds. According to previous performance, it was mainly due to the depreciation of the RMB against the Hong Kong dollar during the year. If the year-on-year decline caused by exchange losses is not taken into account, the overall operating performance is in line with expectations. Due to the impact of the epidemic, the company's takeout revenue accounted for 19.7% in 2022, +4.8pct year on year, restaurant revenue accounted for 80.0%, and -4.3pct year on year. Other revenue fell 22.3% mainly due to sales of 2 egg pancake brands. The company's overall ability to control expenses is still outstanding. In 2022, raw materials and consumables accounted for 36.1% of revenue (-0.7pct), employee costs accounted for 28.3% (+3.0pct, affected by the decline in same-store sales during the pandemic), depreciation of use-rights assets accounted for 10.1% (+1.9pct), depreciation and amortization of other assets accounted for 4.7% (+0.9pct), and utility expenses accounted for 3.7% (+0.5pct).
Store expansion and supply chain construction are progressing steadily, and new brand growth is building a new driving force. By the end of 2022, Taier had a net increase of 100 to 450, and more than 10 stores were renovated at the end of the year. Considering the restrictions on the BD team due to the 22H1 pandemic, the overall fulfillment was in line with expectations. Hotpot saw a net increase of 18 to 27, exceeding expectations during the year, showing strong flexibility in opening stores and C-side recognition. The total amount of capex in 2022 was 370 million yuan (+10.0%).
On the operating efficiency side, Taier's occupancy rate was 2.6, down 0.8 times from the previous year, mainly due to the impact of the epidemic. The year-on-year recovery in 2023 was good, and the sinking market performed well. However, the operating efficiency of Hot Pot increased slightly at the same level as in 2021. According to turnover statistics, it reached 3.6 times in 2022. It has a clear advantage in horizontal comparison of the hot pot circuit, showing that its model development is more mature. It is expected that after the epidemic, there may still be room for improvement as offline consumption recovers and the brand's own cultivation. Lai Mei Grilled Fish still has 2 stores, but the turnover rate increased from 2.4 to 2.7 in 2022. There was generally a slight decline in per capita consumption of all brands. Same-store sales were also mainly affected by the pandemic. Taieru declined by 22.3%, but Eng Hot Pot bucked the trend and increased 6.4%. Looking at store-level profit margins, nine margins remained stable, with Taiji at 14.3% (-7.5pct) and other brands at -2.2% (+3.5pct).
The company is currently focusing more on core brands, selling 2 egg pancake brands in the first half of 2022. In the future, it will still follow a multi-brand multi-concept strategy, continue to expand encryption into market segments, and explore overseas markets. The company expects the store expansion plan to be stable in 2023, and hot pot is expected to accelerate further. Recent years have been a period of rapid growth in store expansion and operating efficiency. At the same time, the company continues to steadily promote supply chain capacity building. It has leased a new warehouse near the central kitchen in Foshan to expand capacity. Additional equipment can later be installed and the first warehouse converted into a food processing center. It has begun construction of new supply chain centers in South and North China, and has begun construction of a hot pot seasoning and compound seasoning production plant and a central kitchen in southwestern China. The company initially planned to build another central kitchen in East China. Employee incentive levels, stock incentives, and share option schemes continue to benefit employees. The gradual improvement of self-developed digital systems will further empower all business lines. As a company with a mature style of play for many brands in Chinese restaurants, I am optimistic that after the restoration of offline consumption, several core brands will segment the brand power and model verification of the circuit, and the new brands are expected to have strong ability to cultivate and expand.
Investment advice: It is estimated that the net profit of the mother will be 653 million yuan, 991 million yuan, and 1,256 million yuan in 2023-2025. The current stock price corresponding to PE is 35X, 23X, and 18X respectively, maintaining the “increase in holdings” rating.
Risk analysis
1. If CAGR on the sauerkraut racetrack slows down drastically and the development of the track gradually enters a bottleneck period, the long-term growth potential of Taiji Pickled Fish as the leading brand on the racetrack will be limited, affecting overall revenue growth;
2. The stability of models of new brands, such as Hot Pot, in the process of rapidly increasing the scale of store opening, and the room for improving brand operating efficiency, if model verification is unstable or affects the brand's overall growth space and development curve after rapid scale expansion; 3. The Chinese food circuit itself is highly competitive. If the primary market gradually regains its enthusiasm for investment and financing after the epidemic, and there are many new brands added on the supply side, it may have a continuous impact on the operation and innovation of leading brands; 4. Offline commercial centers and food consumption trends are affected by the overall economic environment or other factors.