Xiabuxiabu announced its 2022 annual results. Revenue of 4.725 billion yuan/yoy -23.1% in '22; segment performance - 219 million yuan/yoy -252.0%; net profit of the mother was 353 million yuan, compared to -293 million yuan in '21.

The decline in revenue and profits was mainly due to the suspension of a number of restaurant operations by the Group under the influence of the pandemic.

The Xiabuxiabu store matrix continues to be optimized, bucking the trend and expanding under the turmoil of the Minato Minato epidemic. The Group opened 86 new stores and closed 84 in 2022. As of the end of 2022, the Group had 1,026 stores. Store data by brand: 1) Xiabuxiabu: In 2022, 41 stores were opened, 81 stores were closed, and the total number of stores by the end of '22 was 801. 2) Minato Minato: In 2022, 44 stores were opened, 3 stores were closed, and the total number of stores was 224 by the end of '22. In '22, the Xiabu brand continued its store optimization strategy, closed stores with loss/poor location selection, and optimized the distribution structure of stores. Minato relied on strong brand potential and continued to buck the pace of expansion under the turbulence of the epidemic, accelerating penetration into the core business districts of the first and second tier markets. In '23, the Group will accelerate store expansion and expand store coverage. The Group expects the Xiabuxiabu brand to open no less than 100 stores in '23, of which the number of first-tier cities such as Shanghai/Guangshen will open no less than 50% of the total, boosting the layout of stores in the Yangtze Delta/Pearl River Delta and central provinces, optimizing location selection decisions and creating a new low-area store model; the Minato brand will continue to expand eastward and southward, encrypting the market layout of East China and South China; taking advantage of plans to settle in cities such as Beijing, Shanghai, Shenzhen, Hangzhou, etc. Furthermore, the company plans to open stores in Hong Kong, Taiwan, etc., and is preparing to enter the Malaysian market.

The turbulence of the epidemic has led to a decline in the occupancy rate/turnover rate, and the level of per capita consumption has increased. 1) Xiabuxiabu:

The total occupancy rate was 2.0 times, down 0.3 times from the previous year. The occupancy rate of all tier cities declined, mainly due to the impact of the epidemic; customers spent 63.9 yuan per capita, +2.2% year on year, mainly due to the year-on-year increase in per capita consumption in first-tier cities, third-tier cities and below. 2) Minato Minato: The total turnover rate was 1.9 times, down 0.6 times from the previous year. The turnover rate in all tier cities and regions outside of mainland China declined, mainly due to the impact of the epidemic on the actual turnover rate of restaurants; per customer spent 150.9 yuan, +7.3% year on year. The average per capita consumption in all tier cities and regions outside mainland China increased, mainly due to the high number of group buying businesses during the pandemic.

Future outlook: Dual headquarters strategies enable southward expansion, and multiple brand/product level strategies enhance brand potential.

Focusing on subsequent development, Xiabuxiabu will set up a second headquarters in Shanghai to support the expansion strategy for southern markets such as East China/South China, and set up an international division to boost overseas business. In terms of brand/product innovation, the Xiabuxiabu brand will further try to get close to young consumers, deepen the membership system, strengthen its cost-effective image, increase digital marketing, and gradually lay out the time period for afternoon tea and dinner after mid-2023; the Minato brand will target a new middle class customer base, focusing on the concept of light luxury party/tea, and further increase brand awareness through marketing, at the bottom of the cook/snack. Continue to promote updates .

Investment advice: We believe that the company is based on two major support points and three driving points. Its fundamentals are stable, its growth is extremely high, and it still has strong competitiveness in the current hot pot restaurant market. 1) Private traffic support: The company's member benefit system is perfect, brands under the group can drain each other, and are good at using brand linkage and membership discounts to expand member coverage. It has formed a mature style of play that can continuously supply energy for store operations; 2) Supply chain support: achieving high logistics transportation efficiency, low food loss and stable raw material procurement prices through a three-level distribution network, a digital logistics system and in-depth upstream layout to drive profit growth; 3) Xiabuxiabu: The year-end price ratio menu maintains stable customer unit prices and drives higher occupancy levels in 2021; Announced the expansion of the Nanshita store Strategy, the small hot pot market segment in southern cities is still in the blue ocean, and there is plenty of room for development. 4) Minato Minato: Continued innovation and breakthroughs in hot pot and tea drinks ensure strong brand potential. Afternoon tea and supper hours meet consumers' emotional communication needs. Stores in Tier 1 and 2 cities are expanding at a steady pace, and there is plenty of room for overseas expansion. 5) Chiyaki: The store model is excellent, the Shanghai store has received a good response, and there is plenty of room for growth. The company's net profit for 2023-2025 is estimated to be 366/620/803 million yuan, and the corresponding PE is 19X/11X/8X, maintaining the “recommended” rating.

Risk warning: Industry competition heightens risks, and the epidemic disrupts risks.