Performance review

2022 results are in line with previous profit warnings

The company announced its 2022 results: revenue was -23.1% year on year to 4.72 billion yuan (Xiabu restaurant revenue was -35.7% year on year, Minato Minato's revenue was -4.2% year on year). Guimu's net loss was 350 million yuan (vs. Guimu's net loss of 290 million yuan in 2021), mainly negatively affected by the pandemic, and the performance was in line with previous profit forecasts. By the end of '22, there were 801 Xiabu brands (41 new homes opened, 81 stores closed) and 224 Minato Minato (44 new homes opened and 3 stores closed). In 2022, Xiabu Restaurant had a turnover rate of 2.0 and Minato Minato's turnover rate of 1.9 (both down from '21); Xiabu Restaurant's same-store sales were -23.0% year-on-year, and Minato Minato's same-store sales were -22.0% year-on-year.

Development trends

Brand adjustments and stored value card activities have boosted Xiabu brand stores since the beginning of the year, focusing on the sustainability of subsequent recovery and store opening progress. The Xiabu brand has adopted a series of operational improvement measures: on the product side, the unit price for Xiabu customers was 63.9 yuan in '22, of which the unit price for the package was about 60 yuan; the company plans to reduce the new store area from 210 square meters in '21 to 150 square meters and test the new 120-square-meter store model; at the employee level, continuously improve the quality of employees and optimize incentive plans (such as management training projects, bonus KPI settings, etc.); at the rent level, the company strictly controls the rent level of newly signed stores, and the long-term rent-sales ratio target is 10%; in terms of organizational structure, the group plans to reduce the new store area from 210 square meters in '21 to 150 square meters and test the 120-square-meter new store model; at the employee level, the company strictly controls the rent level of newly signed stores, with a long-term rent-to-sales ratio target of 10%; in terms of organizational structure, the group plans to reduce the new store area from 210 square meters in '21 to 150 square meters and test the 120-square-meter new store model; at the employee level, the company strictly controls the rent level Established in Shanghai The second headquarters focuses on developing East China and South China, and plans to have no less than 50% of Xiabu's new stores located in first-tier cities such as Shanghai and Guangshen. Judging from the recovery of the same store since the beginning of the year, benefiting from brand adjustment measures, plus the Prepaid Card promotion campaign and the Spring Festival peak season, we estimate that in January/February 23, the Xiabu brand and the same store were +36%/+7%, respectively. In terms of opening stores, the company plans to open 120 new Xiabu brands in mainland China in '23 (and about 30 stores closed); in January-January, 36 new stores were opened in mainland China, including 11 in Shanghai. It is recommended to focus on the progress of store opening and the restoration of sustainability in the same store.

Minato Minato's same store declined somewhat in February, focusing on the recovery of consumption power and the boost brought about by the new membership system; long-term store expansion space is yet to be verified. We estimate that in January/February '23, the Minato Minato brand and the same store were +3%/-10%, respectively. On the one hand, the decline in February data was due to mismatches during the Spring Festival holiday and the recovery of consumption power, and on the other hand, there is still room for improvement due to internal management. The company adjusted Minato's organizational structure from 9 divisions to 4 regions and continuously optimized the incentive mechanism, and the group is about to launch a new membership system. It is recommended to observe the boosting effect on brands and stores. The company directed Minato to open 74 new stores in mainland China in '23, reduce capital expenses for new stores (new store area may drop to 400-500 square meters), and set a long-term rent-to-sales ratio target of 8%. Considering the fierce competition on the hot pot circuit, the unit price for Minato Minato customers is high, and the requirements for the business district level, store environment, and employee service ability are high, we think that future store expansion space still needs to be verified.

Focus on new brands and overseas market expansion. The company plans to open 20 new Chiyaki stores in 2023, mainly in developed first-tier and new first-tier cities. The brand positioning is more high-end than Minato, and the single-store model is still being refined. Furthermore, based on optimism about the overseas Chinese food (hot pot) market, the company set up an overseas division and plans to open more than 20 new stores outside of mainland China in 2023, mainly the Minato brand.

Profit forecasting and valuation

Maintain earnings forecasts for 2023 and 2024. The current stock price corresponds to 10 times the 2024 P/E. Considering that the effects of the Xiabu brand adjustment have yet to be verified, and there is still uncertainty about Minato Minato's opening space, the neutral rating was maintained, and the target price was lowered by 8% to HK$7.6, corresponding to 12 times the P/E of 24 years, with an upward margin of 18%.

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.