Xiabuxiabu reported 1H23 revenue of Rmb2.8bn (+32% YoY), and net profit of Rmb2m, lower than our expectation, mainly due to the lower-than-expected same-store-sales. We lower 23E EPS forecast from Rmb0.28 to Rmb0.10, lower 24E EPS forecast from Rmb0.38 to Rmb0.21 (+119% YoY), and lower 25E EPS forecast from Rmb0.49 to Rmb0.34 (+62% YoY). We lower target price from HK$8 to HK$4.7, and with 19% upside potential, we downgrade rating from Buy to Outperform.
Increasing store unit, with Coucou brand's revenue contribution higher than that of Xiabuxiabu brand. During 1H23, the company opened 91 new Xiabuxiabu stores, 28 Coucou stores, and 1 Shaohot store, and closed 49 Xiabuxiabu stores and 3 Coucou stores. By the end of 1H23, the company has owned and operated 843 Xiabuxiabu stores, 249 Coucou stores, and 2 Shaohot store.Xiabuxiabu brand, Coucou brand, condiment business, and other businesses accounted for 48%, 49%, 2%, and 1% of total revenue, respectively, in 1H23.
Coucou: same-store under pressure, lower store unit target. During 1H23, Coucou same-store sales grew by 4.9% YoY. However, the same-store sales fell by 4.1% YoY in second-tier cities, and fell by 15.3% YoY in third-tier cities and below, due to the relatively high pricing of the brand. In 2H23, the company plans to open 18 new Coucou stores in mainland China, and adding the 27 newly opened stores in 1H23, full year target 45 new stores is 29 less than the original expectation of 74 stores.
Xiabuxiabu: Adhere to high cost performance, raise store unit target. During 1H23, Xiabuxiabu same-store sales increased by 29.1% YoY. In 2H23, the company plans to open 51 new Xiabuxiabu stores in mainland China, and adding the 89 newly opened stores in 1H23, full year target 140 new stores is 20 more than the original expectation of 120 stores.
Shaohot: lower store unit target. In September 2022, the company launched a new brand "Shaohot" which focuses on offering delicious roasted meat products. Focusing on the middle and high-end consumer groups, Shaohot upholds the concept of "roasted meat + beverage and tea + joy". In 2H23, the company plans to open 6 new stores in Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou, and adding the 1 newly opened store in 1H23, full year target 7 new stores is 13 less than the original expectation of 20 stores.
International Business Department. Aside from expansion into Hong Kong in 2019, Coucou has showcased its international expansion footprint by opening its first restaurant in Singapore at the beginning of 2022. Xiabuxiabu brand has opened its first overseas restaurant in Singapore in January 2023. The company has established the International Business Department on 1 January 2023. In 2H23, the company plans to open 8 new overseas stores, and adding the 1 newly opened store in 1H23, full year target 9 new stores is 17 less than the original expectation of 26 stores.
Downgrade rating from Buy to Outperform. We like the growth potential of Coucou, and the catalysts from the new store opening of Xiabuxiabu brand and the new barbecue brand, but await for the improvement of same-store-sales and margin. We lower target price from HK$8 to HK$4.7, and with 19% upside potential, we downgrade rating from Buy to Outperform.
Risks: Slower-than-expected store openings; slower-than-expected same-store growth.
