Introduction to this report:

Results are in line with forecasts, store operating margins have increased, and store expansion is expected to accelerate.

Summary:

Maintain an increase in holdings rating. Considering the company's 2025-2026 store opening guidelines, net profit for 2024-2026 is expected to be -0.31, 0.42 (+0.03), and 999 million yuan, respectively, with corresponding PS of 2.14x, 1.61x, and 1.19x, respectively.

Performance summary: The results are in line with the forecast, with total revenue of 3,051 billion yuan/year on year +51%, store-level operating profit margin of 13.8% /year on year +3.7 pct, net profit attributable to mother - 266.03 million yuan, adjusted net profit of 8.778 million yuan, turning a year-on-year loss into a profit. 2023H2's total revenue was 1,674 million yuan/year over year, operating profit margin at the store level was 13.9% (13.5% for 23H1), net loss to mother of 35.35 million yuan, and adjusted net profit of 26.22 million yuan.

With increased urban coverage, store expansion is expected to accelerate. By the end of 2023, the number of the company's stores was 768, with a total net increase of 180 stores in 2023, including a net increase of 39 in the Kitakami market and a net increase of 141 in the new growth market. The plan is to open 240 stores in 2024 with a capital expenditure of 370 million yuan. From the beginning of 2024 to March 22, 2024, 55 new stores have been opened, 35 are under construction, and 88 have been contracted or approved, accounting for more than 74% of the total number of target store opening plans for the whole year. Store openings are expected to accelerate, and 300-350 stores are expected to be opened every year from 2025 to 2026.

The growth momentum of the new growth market is strong, and profitability is increasing at an accelerated pace. ① Revenue by region: North China market revenue +20.8%, takeout accounting for 76%; new growth market revenue +102.9%, takeout accounts for 42.1%, and new growth accounts for 49.4% of the company's total revenue (23H2 new growth market accounts for 52.8%). ② Newly opened stores performed well: The average daily sales of stores opened in 2023 reached 32,400 yuan in 2023, and the average return on investment is expected to be 9 months. ③ Cost ratio optimization: In 2023, raw material costs accounted for 27.4% /year on year +0.2 pct; employee compensation accounted for 38.6% /-0.2pct year on year, including store level 26.9%/-1.7pct, company level 7.3% /-1.0pct, share payment 4.4% /+2.4pct; rent ratio 10.1%/-0.6 pct year on year.

Risk warning: The opening of stores fell short of expectations, there was a marked decline in same-store stores, and consumer demand was weak.