Recommended logic: 1) The company's franchise stores have strong expansion capacity and speed. From 1,441 franchise stores in early 2020 to over 10,000 stores in early 2023, the company's revenue grew at a compound growth rate of 55.5% in 2020-2023, and there was still 30%-50% exhibition space; 2) Profitability improved markedly. Through continuous optimization of the supply chain, the company's gross margin increased from 11.1% in 2020 to 17.4% in 2022, and there is still room for growth; 3) After estimation, most franchise stores The payback cycle is 26 months, and the profitability of franchise stores is guaranteed.
It only took three years from one thousand stores to ten thousand stores, and there is still 30%-50% exhibition space. The company's revenue mainly comes from selling hot pot and barbecue products to franchise stores. After three years, franchise stores rapidly grew from 1,441 in early 2020 to 9216 in early 2023, and officially joined the Wandian Club in early 2023. The number of franchisees operating one or more stores increased from 892 in 2020 to 1,765 in April 2023. The high-quality growth of franchisees and franchisees led to an increase in operating income from 2.97 billion yuan in 2020 to 7.17 billion yuan in 2022, with a compound annual growth rate of 55.5%. According to estimates, there is still obvious encryption space in the company's southwest, northeast and other regions. The number of franchise stores has room for growth of 30%-50% in the short term, and the momentum for subsequent growth is still strong.
With supply chain optimization, gross margin has increased significantly, and barbecue products have plenty of room for improvement. The company raised the gross margin level by 1) introducing high-margin products; 2) switching from procurement to production; and 3) narrowing the level of discounts. The largest single products in hot pot products have basically completed self-production, and self-produced products account for about 10% of revenue, driving the gross margin of hot pot products to increase significantly from 11.1% in 2020 to 18.5% in 2022. The gross margin of barbecue products is relatively low, maintaining a gap of 2pp-3 pp with hot pot products. It is expected that there is still a lot of room for improvement under the subsequent scale effect.
A win-win situation for the company's franchisees to ensure the speed of expansion. In order to achieve rapid expansion, the company adopted a zero franchise fee policy to attract members. The total investment in a single store was about 230,000 yuan, lower than the 30-350,000 investment of Meiyijia convenience stores. In terms of profitability, the company's new stores in 2020 and 2021 all climbed to a turnover of around 13,000 yuan in the second year of opening. The single-store model and profitability are similar to convenience stores. Among them, the cost of opening a store before 2020 was about 19,000 yuan, and the payback period was only 2 years, meeting the expectations of most franchisees. Some excellent stores were able to complete investment recovery within 1-1.5 years. The more profitable a franchise store is, the shorter the payback period, the stronger the willingness to join, and the faster the company expands.
Profit forecast and rating: The company's net profit from 2023-2025 is estimated to be 390 million yuan, 520 million yuan, and 700 million yuan respectively. The current market value corresponding to PE is 40/30/22X. Considering the long life cycle of the hot pot and barbecue track that the company focuses on, the company has strong ability to expand from other locations and is fast, and the short-term exhibition space is as high as 30%-50%. Profitability has improved markedly. Optimistic about the potential for the company's subsequent large-scale performance, it was given a “hold” rating for the first time.
Risk warning: Risks such as showrooms falling short of expectations, single-store revenue growth falling short of expectations, gross margin increase falling short of expectations, and price increases of raw materials.