Key points of investment
The company discloses full-year 2023 results, which are in line with previous earnings forecasts
Looking at the full year, the company achieved operating income of 5.986 billion yuan (yoy +49%) and net profit of 453 million yuan (yoy +820%) in 2023. Looking at 2023H2 alone, the company achieved operating income of 3.106 billion yuan (yoy +47%) and realized net profit of 231 million yuan to mother, turning a year-on-year loss into a profit. The sharp increase in revenue was mainly due to the rapid expansion of stores by the two major brands, Taier and Ne Hot Pot, during the year, which led to a rapid increase in sales revenue. In 2023, Taier/ opened 128/35 net stores respectively, achieving rapid store expansion. The sharp increase in profits is mainly due to a natural decline in the share of rigid costs such as employees, rent, and depreciation after revenue increases.
A number of cost rates improved significantly year-on-year, with a slight increase month-on-month
In terms of gross margin, the full year of 2023/2023H2 achieved gross profit margins of 64.2%/64.6%, respectively, and remained high. We expect this is mainly due to the decline in raw material costs since the beginning of 2023. In terms of expense ratios, 2023H2 employee costs/actual rental costs/depreciation of other assets accounted for 26.6%/10.6%/4.1% of revenue respectively, with significant year-on-year improvements, and both increased month-on-month. We expect the above year-on-year improvements to be due to a natural decline in rigid costs after revenue increases, and the month-on-month increase is due to the cost pre-emption brought about by rapid exhibition stores. In terms of net interest rate, 2023H2 achieved a net interest rate of 7.8%, down about 0.5 pcts from month to month.
Taier's iterative brand franchise broke the game, and the hot pot single-store model still has room for improvement
Taiji continues to iterate on the brand and encourages continuous model refinement. The operating profit margins for the full year of 2023 were 19%/12% at the restaurant level, respectively. Compared with 23H1, they are all down. We think it is mainly due to increased competition in the 23H2 catering industry. In order to cope with competition, the company moves frequently. On the other hand, Taier launched cost-effective dishes and launched online live streaming to renew its brand image in a multi-pronged approach. At the end of October 23, the GMV for its first Douyin live broadcast successfully surpassed 100 million yuan; in terms of hot pot, the company continued to reduce the number of workers employed in a single store through process optimization, and the share of labor costs for the poor brand dropped significantly during 2023. Let go and join, and Taiji opens up room for imagination when opening a store. In February '24, the company announced that it will open up franchise cooperation in some regions of Tai'e. We expect that this move will accelerate the expansion of Tai'er's stores and open up room for long-term imagination in the long term. There is still room to imagine the profit margins and number of stores opened against Taeji and the number of stores opened. Currently, the operating profit margin at the restaurant level is about 12%, and there is still room for improvement of 7pcts against Taier. At the same time, Deng currently has a total of 60+ stores, and the total number of Taier stores is nearly 600, and there is still plenty of room to open.
Profit forecasting and valuation
The company is a leading multi-brand restaurant in China. The opening of new stores in 2023 has been steadily realized, and the basic Taier brand is recovering and liberalizing to join. The second curve encourages brands to rapidly expand their stores, and the prospects are promising. We expect the company to achieve net profit of 577/707/822 million yuan in 2024-2026, a year-on-year growth rate of 27%/23%/16%, corresponding to PE 13/11/9 times, respectively. Considering that the restaurant circuit has broad prospects and the company's brand strength is stable, we maintain a “buy” rating.
Risk warning: macroeconomic downturn, food safety, store expansion falling short of expectations, etc.