occurrences

On March 4, 2024, the company announced its 23-year performance forecast. It expects revenue to be no less than 3 billion yuan, a year-on-year increase of not less than 48%, a net loss due to mother no more than 29 million yuan, a year-on-year loss reduction of not less than 87%, and adjusted net profit of not less than 8 million yuan, reversing year-on-year losses.

reviews

A net of 180 stores were opened throughout the year, and the pace of store expansion accelerated. According to the company's announcement, by the end of 2023, the total number of stores was 768/+30.6%. The opening rate was faster than in 2022 (+25.6%). 180 net stores were opened throughout the year, 84/96 net stores were opened in the first and second half of the year, respectively, and the second half of the year was faster than in the first half of the year.

New stores in new growth markets performed strongly, improving operational efficiency and improving profitability. 2H23's revenue is expected to be no less than 1.62 billion yuan, and the adjusted net profit is expected to be no less than 25.45 million yuan, and the corresponding adjusted net interest rate is expected to be about 1.6% (revenue and adjusted net profit are calculated at the lower limit). There is a significant improvement in 1H23's profitability compared to the previous month (1H23 adjusted net profit - 17.45 million yuan, adjusted net interest rate -1.3%). We estimate that the increase in profitability is mainly due to 1) continued growth in store revenue, especially strong sales performance of new stores in new growth markets; 2) increased operational efficiency at both the store level and the company level, and further improvement in profit margins.

Product, delivery, and brand advantages are outstanding. It is expected that the expansion of scale will lead to nonlinear growth in performance, and will continue to be positive. Domino is positioned as a pizza expert. Fresh dough is kneaded by hand to guarantee taste. The number and degree of customization of pizza SKUs is higher than that of peers, and the wide price range can simultaneously meet cost performance and upgrade requirements; in terms of delivery, “free pizza vouchers within 30 minutes”, led by its own rider team to ensure the speed and stability of contract fulfillment; the brand relies on the international pizza brand with the largest number of stores in the world, and emphasizes the construction of its own membership system. In '22, online channels accounted for 52% of overall sales. The adjusted net profit of the company has reversed losses. It is expected that as the size of stores expands, middle and back office costs will be further diluted, and profitability is expected to continue to increase.

Profit Forecasts, Valuations, and Ratings

The company has an outstanding competitive advantage in the pizza category. It is currently in a period of rapid store expansion. It is estimated that 23E~25E net profit is -0.29/0.14/149 million yuan, adjusted net profit of 0.08/1.34/ 269 million yuan, a year-on-year reversing/ +1675%/+99.8%, maintaining a “buy” rating.

Risk warning

Stock liquidity risk, risk of lifting the ban on restricted stocks, and falling customer unit prices.