2023 is expected to achieve net profit of $24 million, reversing losses for the first time
Tehai International announced a positive profit forecast on February 29. It is expected to achieve revenue of 680 million US dollars, +21.9% year on year; net profit of 24 million US dollars, with a net interest rate of 3.5%, reversing net profit losses for the first time. We expect 2H23 restaurant's profit margin to increase 1H month-on-month, and the impact of non-recurring factors such as exchange losses will be reduced. The company has attached great importance to improving quality and efficiency for 23 years. We believe that expansion and profitability are expected to increase as UE becomes more mature. In the medium to long term, the Haidilao brand is going overseas, and there is considerable room for expansion. We expect the company's 23/24/25 EPS to be 0.04/0.08/0.10 US dollars. Based on 25X24E PE (see comparable company Wind 24 and Bloomberg's agreed global average of 22 times PE, the company is in a period of rapid growth, and there is broad demand for Chinese food overseas), we will give a target price of HK$15.65 to maintain a “buy” rating.
The 2023 turnover increased year-on-year, and profitability improved in the second half of the year 2023. The company achieved revenue of US$680 million, +21.9% year-on-year, corresponding to a turnover of 3.5 times per day (vs1h 23:3.3 times/day, 2022:3.3 times/day). Looking at the breakdown, 2H23 expects to achieve revenue of US$356 million, +14% year over month, 1H23 +9.9% month on month, net profit of US$20.61 million, +43% year on month 1H23 +507.1% month on month, net profit margin 5.8%, +1.2pct year on year, and +4.7pct month-on-month. Considering that the net profit side of 1H23 includes impairment losses of US$2.18 million and exchange losses of US$10.71 million, if the above effects are added, we estimate that the adjusted net interest rate of 1H23 is 5%. The 2H peak season increased month-on-month, and management efficiency improved. We expect restaurant profit margins and net margins to improve to a certain extent compared to 1H (1H23 restaurant profit margin 8.3%).
Global expansion is expected to accelerate. The new blue ocean for Chinese food is in broad demand and a good pattern. By the end of '23, the company covered 12 countries, had 115 stores, and opened 4 new stores throughout the year.
The company uses a bottom-up expansion strategy, replicates the domestic “mentoring and apprenticeship” system, and leverages the initiative of front-end backbone. According to the 1H23 results conference, 2H23-1H24 plans to sign 30 new stores. As operational experience continues to accumulate, we expect subsequent showrooms to accelerate. Based on the long term, the company focuses on improving efficiency, strengthening territorial collection and fine management capabilities. As scale advantages accumulate, UE polishing and optimization, raw materials/labor/single store investment costs, etc. are expected to continue to improve, boosting restaurant profit margins. We are still optimistic about the overseas Chinese food pattern and blue ocean opportunities, and Haidilao's competitiveness as a representative Chinese food brand.
Adjust the target price to HK$15.65 and maintain the “Buy” rating
Based on the company's number of new store openings in 2023, store preparation period, and turnaround repair trends, we expect EPS of $0.04/0.08/0.10 for 23/24/25 (previous value: $0.03/0.08/0.10). Considering that the company is in a period of rapid growth, and there is a broad demand for Chinese food overseas, a premium is given. Comparing the company's 24-year Wind and Bloomberg, the global average expected average PE is 22 times, giving the company 25X 24-year PE, with a target price of HK$15.65 (previous value: HK$16.99).
Risk warning: expansion falls short of expectations, market competition intensifies, and residents' willingness to spend in various countries has declined.