Description of the event
Helens released its 2023 mid-year report: In the first half of 2023, the company achieved operating income of 710 million yuan, a year-on-year decline of 18.7%; achieved net profit of 157 million yuan, reversing losses from the previous year; after adding 19.2 million yuan in pub optimization and adjusted losses, it achieved an adjusted net profit of 177 million yuan, reversing losses year-on-year. The company announced a semi-annual cash dividend of RMB 1.162 per 10 shares.
Incident comments
Overall, in the first half of 2023, due to factors such as offline scene repair and store system optimization, the company's profitability stabilized in the medium term. We look forward to drawing a new curve from scratch when the “Hi Beer Partner” joins the new model in the second half of the year. In the first quarter, offline compensatory consumption was superimposed on the holiday party boom. The company actively disclosed operating data and provided the market with a reference for a financial model in a stable environment: in the first quarter, the company achieved revenue of about 360 million yuan; realized gross profit of about 260 million yuan, corresponding gross profit margin of 72.3%, net profit of 75 million yuan, and a corresponding net interest rate of 21.1%. According to this estimate, in the second quarter alone, the company achieved revenue of about 350 million yuan, down 0.3% from the first quarter, mainly due to the decline in the economy and the closure of stores; realized gross profit of about 260 million yuan, corresponding to a gross profit margin of 72.3%, which was flat month-on-month; realized net profit of about 83 million yuan, corresponding to a net interest rate of 23.3%, an increase of 2.2 pct.
In the second quarter of a year alone, the company's business fundamentals changed significantly: 1) In terms of business model, it moved from “linear direct management” to “platform-based cooperation” (mid-2022), and now it is shifting to “Hi Beer Partner Joining” (mid-2023). On June 2, 2023, the company announced an investment conference and announced a pure trusteeship control franchise model. In the future, new stores will be dominated by franchise stores; in addition, it had previously closed (and will be shut down one after another) a number of stores with poor location selection and poor efficiency at the end of May. Judging from the number of stores, as of June 30, the company had opened 25 new pubs and closed 139 pubs. The number of stores was reduced to 653, down 23% from the previous year, with 515 and 138 direct-run and franchise stores respectively; as of August 25, the total number of stores had dropped further to 562, including 11 “Hi Beer Partners” franchise stores, and the number of directly-managed stores and franchise stores dropped to 425 and 126 respectively. Looking ahead to the future market, the interim report revealed that there are currently more than 80 partnerships, and opening stores is expected to accelerate during the year.
2) In terms of single-store sales, the racetrack economy declined month-on-month in the second quarter, and the company took the initiative to silence inefficient stores. In the first quarter, the overall daily turnover of stores was 90,000 yuan, and the same stores (387 stores) averaged 11,200 yuan per day; in the first half of the year as a whole, overall daily sales of stores were 8.2 thousand yuan, and the same stores (188 stores) averaged 11,600 yuan per day. Overall efficiency improved after closing loss-making stores. Looking at store types, the average daily sales of direct-run taverns and franchised taverns were 7.9 thousand yuan and 9.0 thousand yuan respectively. By city level, the average daily sales of taverns in first-tier cities, second-tier cities, and third-tier cities and below were 8.4 thousand yuan, 8.3 thousand yuan, and 7.9 thousand yuan respectively. The growth was significant under a low base in high-tier cities, while third-tier cities remained the same year-on-year. Looking at store batches, the average daily sales volume of newly opened stores in 2019, 2020, 2021, 2022, and the first half of 2023 was 10.6, 9.6, 7.2, 6.8, and 8.2 thousand yuan, respectively. Furthermore, as of the announcement date, the average daily floor efficiency per store of Hi Beer was 2.6 times that of new stores in the first half of 2023.
Profit prediction and investment advice: As a company pioneering the path of standardization in the pub industry, cost efficiency, high profit, and light service -- Tongshun's racetrack logic gives the company room for trial and error; we believe that Helens is currently showing the best version of the store model. Business format innovations such as franchise expansion, store size reduction, and investment decline can be expected. The opening space is no longer limited to “student business”. Light investment and full hosting services are attractive to franchisees, and light-asset expansion in the sinking market has imagination for growth. It is estimated that in 2023 and 2024, the company will achieve net profit of 3.1 billion and 4.6 billion dollars, and maintain a “buy” rating.
Risk warning
1. The recovery in consumption fell short of expectations;
2. The franchise expansion fell short of expectations.