Key points of investment

The company disclosed 2023H1 results, which were basically in line with the previous performance forecast, and the 2023H1 company achieved operating income of 2,846 million yuan (yoy +32%) and achieved net profit of 2.41 million yuan, turning losses into profits over the previous year. The sharp increase in revenue was mainly due to the resumption of customer flow and store expansion. We expect profit growth to fall short of expectations mainly due to the slow recovery in consumption since the beginning of the year, and the recovery of employee costs and rental costs has been slower than expected.

Gross margin remained high, and multiple cost ratios improved markedly year-on-year

In terms of gross margin, 2023H1 achieved a gross profit margin of 62.6%, maintaining a high level. It is expected to be mainly due to the optimization of various raw material costs since the beginning of the year. In terms of cost ratio, employee costs were achieved at 32.7%, a year-on-year improvement; actual rental costs were 15.7%, a significant improvement over the previous year; depreciation and amortization of other assets accounted for 6.1%, an obvious improvement over the previous year. The above cost improvements are expected to stem from a natural decline in rigid costs after normal operations resumed. In terms of net interest rate, 2023H1 achieved a net interest rate of 0.07%, a significant improvement over the previous year. The company's cost improvements have begun to bear fruit. In the future, the company plans to continue to upgrade logistics, procurement and quality control processes to further reduce costs and improve efficiency.

The main brand opened stores to speed up store efficiency, and Minato used the Group's turnover rate to recover. The company began reforms in 2021, and has now entered a harvest period. 1) The main brand Xiabu adheres to the concept of “high cost performance”, speeding up store opening and improving store efficiency. The main brand of 2023H1 Xiabu achieved revenue of 1,377 million yuan (yoy +29.5%), with a turnover rate of 2.4, compared to 1.9 in the same period last year. The total number of stores was 843, a net increase of 42 stores since the beginning of the year. 2) With the help of the Group's stored value concession activities, Minato has rapidly expanded its membership base, and the turnover rate has rebounded somewhat. 2023H1 Minato Minato achieved revenue of 1,402 billion yuan (yoy +36.8%), with a turnover rate of 2.1 billion yuan, compared to 1.9 in the same period last year. The total number of stores was 249, a net increase of 25 stores since the beginning of the year.

Profit forecasting and valuation

The company is a multi-brand restaurant leader. With personnel and brand strategy adjustments settled, the company is expected to break out of the trough and usher in an inflection point in performance, driven by the two brands Minato Minato and Xiabuxiabu. We expect the company's net profit from 2023-2025 to be 1.74/276/400 million yuan respectively, with a year-on-year growth rate of 59%/45% for 2024-2025, and a corresponding PE of 22/14/10 for 2023-2025, respectively. Considering the company's undervaluation and high performance flexibility, we maintain our “increase in holdings” rating.

Risk warning: macroeconomic downturn, food safety, store expansion falling short of expectations, etc.