The Zhitong Finance App learned that BOC International released a research report saying that maintaining the Jiumaojiu (09922) “buy” rating, due to increased competition in the catering market and underestimating its impact on average sales prices and profit margins, the 2023-25 EPS will be lowered by 18%-28%. The target price will be lowered from HK$20.5 to HK$9.9, and the 2023 results will be released after the market on March 22. Due to market sentiment towards the restaurant industry, the price-earnings ratio has been compressed, and Jiumaojiu's stock price has not performed well since the beginning of the year (-15.7%, Hang Seng Index -3.8%). Despite this, Jiumaojiu is still a high-growth company, with a revised 2024-26 compound annual growth rate of 38% in earnings per share, which stands out among Chinese consumer stocks.

The main views of JBC International are as follows:

2023 performance outlook: Sales/net profit is expected to rebound 49%/759% year on year:

The bank expects nine maojiu's sales and net profit to mother in 2023 to increase 49%/759% year-on-year, respectively, to 5.962 billion yuan/423 million yuan (4%/7% lower than the market consistency forecast, respectively). The bank cut net profit by 18% in 2023 because it is predicted that Taiji's new stores will open at the back end of the year, which will increase costs but contribute limited sales, and it is expected that weak same-store sales will depress Taiji's profit margins.

Taiji — Most of the high-return stores have already been opened:

The pace of opening stores is expected to be slow in the future, and the return rate is low: the bank expects Taiji (which previously accounted for the vast majority of the company's operating profit, or 78% of 1H23) to slow down (mostly focusing on offline cities), while profits per store will decrease. The company guides the opening of 105 new Taier restaurants in 2023 (plus 13 stores planned to open in 2022), while the bank expects to open only 80-100 restaurants in 2024. In recent years, Taiji has accelerated growth through overseas expansion (the 2023 guide is to open 15 overseas stores; the bank expects to open another 15-20 stores in 2024), and recently launched a franchise model to expand into remote regions. If successful, the bank is expected to be used to expand the layout of low-tier cities. Normally, franchisees need to pay a one-time franchise fee, as well as sales commission (commission) and purchase ingredients. However, the cost of this strategy may be at the expense of average store efficiency, as each store's revenue from franchisees will be lower than that of self-operated stores (although profit margins may be higher due to lower costs). As a result, the bank lowered Taiji's mid-term sales forecast.

Naughty Hot Pot — Continued Expansion Amid Fierce Competition:

The bank anticipates that on a lower base (62 restaurants are expected by the end of 2023), the bank will open another 35-40 restaurants in 2024, similar to the pace of expansion in 2023. However, hot pot will face increased competition on the hot pot circuit, all due to weak same-store sales growth during most months of the second half of 2023. The company recently launched a new restaurant concept, “Mountain Mountain Outer Sour Soup Hot Pot”, which will fully operate using a “cooperative model” (similar to the joint venture model of franchisees). The bank believes that this is a new attempt. It is an offensive (if successful, it will bring many benefits) and defensive (if it fails, it won't cause much loss).