Key points of investment

Huangshanghuang's short-term performance is under pressure, and there is plenty of room for long-term profit improvement

Huangshanghuang is a leading leisure and braised company. The multi-category layout supports the company's growth. The company focuses on braised meat products with sauce and collaboratively develops the rice products business. In 2020-2022, due to weak domestic demand, etc., the company's revenue and profit showed a downward trend; in '22, the company's direct operation/franchise model accounted for 6.3%/93.7% respectively; in the future, store efficiency rebounded and store expansion accelerated, and the company's revenue is expected to return to a growth trajectory; gross profit reduction and cost control capacity improved, and there is plenty of room for long-term profit improvement.

The casual brine industry: The industry has broad room for improvement. The market competition pattern is fragmented and the consumer group in the casual brine industry is rejuvenated. The combination of online+offline increases the customer acquisition rate of stores, and the nationwide expansion of regional brands may be an inevitable trend. The market pattern of the industry is scattered, and the market share of the leading market is low. CR3 in '22 was about 10%. Among them, Zhuwei/Zhou Heiya/Huangshanghuang's market share was 5%/2%/2%.

Addressing the two major concerns of the market

1) Concern 1: Weak domestic demand is compounded by increased competition in the industry, and the market is worried that there is limited room for improving the company's future store efficiency; at the same time, stores are mainly concentrated in second-tier cities+ product price band positioning in the middle and above. The market believes that the company is resistant or marginally upward, and there are doubts about revenue returning to the growth trajectory.

We believe: ① The company uses online business to channel offline stores to increase actual sales and drive store efficiency; ② The short-term store expansion strategy is clear and clear, and future store expansion is expected to accelerate: the company focuses on community store sinking+differentiation strategies to support growth, and a clear channel strategy is expected to boost store expansion in the future.

2) Concern 2: Market demand for halogenated products was affected in '23, the cost improvement cycle of marinated food chains was lengthened, raw material prices rose, and the market had doubts about the company's ability to reverse the bottom of profits in the future.

We believe that raw material prices are already at a high level of correction. Short-term higher prices may squeeze profit margins, and the long-term decline in raw material prices is expected to bring opportunities for profit restoration.

Profit Forecast and Valuation:

In 2023-2025, the company's revenue growth rate is expected to be 4.49%/13.29%/12.06%, respectively; the net profit growth rate to mother will be 310.88%/41.14%/33.44%, respectively; and PE will be 39/28/21 times, respectively. The first coverage gives an “gain” rating.

Catalysts:

Store expansion exceeded expectations; demand recovery exceeded expectations; raw material prices fell.

Risk warning:

Risk of fluctuating raw material prices; risk of store expansion falling short of expectations; risk of food safety control.