Incidents:
The company announced its 2023 results. In 2023, the company achieved revenue of 5.99 billion yuan, a year-on-year increase of 49.4%; achieved net profit of 450 million yuan, a significant increase over the previous year; adjusted net profit was 5.0 billion yuan, a significant increase over the previous year, with a corresponding adjusted net interest rate of 8.4%. In line with previous performance forecasts.
Expanding stores helped increase revenue and improve operating profit margins year on year
In 2023, the company's Taier/ Hot Pot/ Jiumaojiu brands achieved revenue of 44.7/81/630 million yuan respectively, accounting for 74.8%/13.5%/10.5%. Continued refinement and rapid expansion of stores accounted for the revenue share of each brand.
From the perspective of the same store, sales at the Taier/ Jiumaojiu/ Jiumaojiu same store increased by 18.3%/10.6%/7.4% respectively, mainly due to a return in customer flow following the resumption of operations. Looking at the volume and price of individual stores, due to changes in the external environment and competitive pressure in the industry, the unit price of Taier/ Nan Hot Pot customers all declined; however, as business operations recovered from the epidemic, the turnover rate of Taier/ Jiumaojiu rebounded 0.4/0.3/0.2 times per day over the same period last year. In terms of profitability, the operating profit margins at the Taier/ Hot Pot/ Jiumaojiu store level were 19.3%/12.2%/17.6%, respectively, an improvement over the previous year.
Continuously exploring multi-brand development, testing the waters of the franchise model with a zero-based mentality, the company continues to explore multi-brand and multi-concept development strategies. In 2023, it opened 134 new restaurants of Taier/ 35 Jiumaojiu/6 Gan Lai Meili/1 place to enjoy fresh wood beef hot pot, and launched Shanwai Sour Soup Hot Pot to enter a new track and model in February 2024 to broaden its customer base and maintain its competitive advantage. In 2024, the company introduced a franchise model to seek a win-win situation with partners and achieve optimal solutions for efficiency and resources.
Improve operating efficiency and optimize shareholder returns
Benefiting from the improvement of central kitchen efficiency and business process optimization, the company's operating efficiency continued to improve. In 2023, the company's raw materials accounted for 35.8%, the lowest in the past 5 years; the ratio of employee costs/rental costs was 25.8%/10.4%, respectively, -2.5pct/-1.7pct. In terms of shareholder returns, the company plans to pay a dividend ratio of no less than 40% over the next 3 years, striving to create greater value for shareholders.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 76.9/94.2/10.63 billion yuan, respectively, with year-on-year growth rates of 28%/22%/13%, and net profit to mother of 6.4/8.2/940 million yuan, respectively, with year-on-year growth rates of 41%/29%/14%, and EPS 0.4/0.6/0.7 yuan/share respectively. Since the company's brand incubation ability and strong operating ability have been verified, based on comparable company valuations, we gave the company 15 times PE in 2024, with a target price of HK$7.23 (corresponding exchange rate: 1 RMB = HK$1.08) to maintain a “buy” rating.
Risk warning: economic decline; consumption recovery falls short of expectations; development of new markets/new models/new brands falls short of anticipated risks.