Short-term store expansion did not meet market expectations: Tehai International (Tehai) 1H23 only opened 4 new stores, which is less than expected by the market. The management said that the company hopes that the number of newly signed stores will reach 30 in the next 6-12 months, but at the same time said that given the long construction period for overseas stores, it will take 1-2 years from signing the contract to opening the stores. Currently, the number of stores that have signed up but not yet opened is in single digits. Based on the above reasons, it is difficult for the market to predict that the total number of new stores will be added this year to exceed 10.

The progress of this store expansion is clearly slower than expected by the market, and it will also cause the market to begin to question the potential and space for Techai's long-term store expansion, thus putting pressure on stock prices in the short term.

There is still plenty of room for long-term store expansion: the company's 1H23 turnover rate has reached 3.3x, and management said that Tehai's turnover rate in various regions still has a lot of room to improve. Even in Singapore, which has the highest number of stores (it already has 21 stores), Tahai's turnover rate is still on the rise. The number of stores has not yet reached saturation, and there is room for continued encryption. The company opened its first store in Dubai this year, which was a huge success (it became profitable in the second month of opening), and also confirmed the huge potential of the Middle East market. The company aims to enter the Philippine and Cambodian markets in the future. The company hopes to attract more local customers through product innovation and localization in the future. We currently predict that Techai will open 12/20/30 new stores in 2023/2024/2025, respectively.

We have long been optimistic about Tehai's growth potential and profit growth: As the only listed restaurant company with an overseas market layout, after Tehai was spun off from Haidilao, its vast expansion space has yet to be reflected in its current valuation. We are optimistic about Tehai's accelerated store expansion and continued increase in store profit margins after 2024, thus driving the market to give Techai a higher valuation level again. According to the profit situation of 1H23, we lowered Techai's return net profit forecast for the whole year 2023, but basically maintained the profit forecast for 2024-2025. Maintain Techai's “buy” rating.

Investment risks: (1) opening stores overseas is slower than expected; (2) market competition is increasing.