Incident: Helens releases 1H23 earnings report. Revenue was 7.1 billion yuan, down 18.7% year on year; gross margin was 72.3%, up 6.3 pct year on year; adjusted net profit was 180 million yuan, with an adjusted net interest rate of 25.0%. Both revenue and adjusted net profit are in line with the profit guidelines. The company will pay an interim dividend of 0.1162 yuan/share, totaling about 150 million yuan.
Comment: Single-store daily sales are gradually recovering, and joining is injecting new momentum. (1) Source of revenue: Proprietary products accounted for 76.3% of revenue, up 0.5 pct year on year, of which alcohol from its own beverages accounted for 42.4%, up 5.2 pct from the previous year; direct management between different business formats is still the main source of revenue, but franchises have increased rapidly, and the revenue share has increased 5.4 pct to 5.5% year on year. Single store daily sales (2) segment level: average daily sales of 0.82 million yuan per store, up 14% year on year; among them, first-tier, second-tier, third-tier urban taverns and below had average daily sales of 0.84/0.3/0.79 million yuan, up 15%/26%/0% year on year; (3) Sub-model: directly-managed taverns had average daily sales of 0.79 million yuan, up 10% year on year; franchised taverns sold 0.900 million yuan per day; (4) Same store: 188 same-store stores had an average daily sales of 11,600 yuan, up 0.1% year on year, and higher than the average daily sales of 4 stores 1.7%
Direct loss-making stores continue to shut down, and the business model favors franchise. The company opened 25 new taverns in 1H23 and closed 139. At the end of the period, the total number of taverns was 653. (1) Sub-level: In addition to 2 overseas rooms, first-tier, second-tier, third-tier cities and below each had 63/314/274 rooms, a decrease of 17/58/40 rooms each from the end of '22. As of August 25, the total number of pubs was 562, and 91 were further adjusted in July-August. (2) Submodel: 515/138 directly-managed and franchised pubs, 425/126 each as of August 25.
The new Hi-Beer Partner model was introduced, and the first batch of stores performed excellently. Since the launch of the Hi-Beer Partner Program in June, the company has fully mobilized high-quality resources from the community, achieved better site selection at a lower cost, and store expansion is expected to accelerate. The first store opened in Xiushui, Jiangxi in July. As of August 25, there were a total of 11 Hi Beer stores. The average daily floor efficiency of a single store was 2.6 times that of a newly opened pub in 1H23. The store's capital guarantee point was significantly reduced, and the profit margin for store operations increased dramatically.
The overall profit structure has improved. (1) Gross profit margin: 1H23 was 72.3%, an increase of 6.3 pct over the previous year. This was mainly due to a decrease in marketing activities due to the increase in the share of sales of new beverage-based alcoholic beverages with high gross profit, as well as a recovery in overall performance after the pandemic. Among them, the gross margin of own/third-party alcohol consumption was 79.4%/55.6%, each up 0.7/7.1 pct over the previous year. (2) Expenses: After deducting share payments, the labor cost rate was 23.9%, down 7.8 pct from the previous year; the depreciation expense rate for right-to-use assets was 8.6%, down 9.4 pct from the previous year.
Valuation forecast: Based on the company's adjustment strategy, direct management contraction, and asset management as the main future development direction, revenue for 23-25 is expected to be 14.4, 16.0 billion yuan, and 1.87 billion yuan, respectively, with year-on-year changes of -7.5%, 10.7%, and 16.9%; adjusted net profit was 3.6, 4.6 billion yuan, and 580 million yuan, respectively, reversing losses and 25.8% and 27.5% year-on-year, corresponding to EPS of 0.29, 0.36 and 0.46 yuan, respectively. Referring to the valuation level of comparable companies, calculate the reasonable market value range of HK$101-121 billion based on 25-30 times PE in 2023, and HK$7.9-9.5 per share in the reasonable value range (HK$1 = RMB 0.90); maintain the “superior to market” rating.
Risk warning: Consumption recovery falls short of expectations, pub expansion falls short of expectations, and industry competition intensifies.