The company released its 2023 annual report: in 2023, it achieved operating income of 5.99 billion yuan/yoy +49.4%; net profit to mother of 450 million yuan/yoy +820.2%, net interest rate of 7.6% /yoy+6.3pct. If foreign exchange loss/earnings effects are excluded, operating income is about 480 million yuan; adjusted net profit of 50 million yuan/yoy +622.7%. In line with the profit forecast, revenue of 5.99 billion yuan and net profit to mother should not be less than 450 million yuan.

Among them, 23H2 achieved operating income of 3.11 billion yuan/ +47.5%; net profit to mother of 230 million yuan/year-on-year reversal of losses. Excluding the impact of foreign exchange loss/earnings, 23H1/23H2's operating performance was about 270 million/210 million yuan. 23H2 operating margin 16.2% /month-on-month H1-3.8pct, net profit margin to mother 7.4% /month-on-month H1-0.3pct.

Performance by brand:

1) Taiji: In 2023, revenue of 4.48 billion yuan/yoy +44.0% was achieved. The number of stores went from 450 to a net of 128 (6 closed) at the end of '22, to 578, with weighted single-store revenue of about 8.71 million. The efficiency performance of split stores was 3.0 times per day in Taiji in '23, +0.4 times per day compared to the same period last year, 23H1-0.1 times per day compared to the same period last year, and a recovery rate of 63% compared to '19. The customer unit price was 75 yuan, 2 yuan compared to the same period last year, the same as 23H1 month on month.

In terms of profit performance, Taiji achieved an operating profit margin of 19.3% /yoy+5.0pct in '23, of which 23H1/23H2 were 21.3%/17.4%, respectively. We expect the profit side to be under slight pressure in the second half of the year due to a decline in the revenue side of individual stores.

2) Hot pot: In 2023, revenue of 81 million yuan/yoy was +210.4%. The number of stores went from 27 stores to a net of 35 (0 closed) at the end of '22, to 62, with weighted single-store revenue of about 18.12 million. According to the efficiency performance of split stores, the turnover rate of hot pot in '23 was 2.8 times per day, compared to +0.3 times per day compared to the same period last year, and the same as 23H1 compared to the previous year. The customer unit price was 113 yuan, -15 yuan compared to the same period last year, and 23H1-8 yuan month-on-month.

In terms of profit performance, in '23, an operating profit margin of 12.2% /year over year, and a decline of 1.5 pct from 23H1. We expect the profit side to be slightly pressured in the second half of the year due to a decline in the revenue side of a single store, and more reserve staff during the accelerated opening period will affect the release of short-term results. We are optimistic about the room for profit margin improvement with subsequent supply chain optimization combined with optimization of the number of people in a single store.

3) Jiumaojiu: In 2023, revenue of 630 million yuan/yoy +4.0% was achieved, and the number of stores was net opened (4 newly opened and 3 closed) to 77. The occupancy rate in Jiumaojiu in '23 was 1.8 times per day, +0.2 times per day compared to the same period last year. The customer unit price was 58 yuan, +3 yuan compared to the same period last year. 23 Jiumojiu achieved an operating profit margin of 17.6% /yoy+4.7pct for the full year.

Costs and expenses: Store-level operating profit of 1.08 billion yuan/yoy +108.5% in 23 years, operating profit margin 18.0% /yoy+5.1 pct. ① The raw material cost rate is 35.8%, yoy-0.3pct, mainly due to revenue side recovery contributions. ② The employee cost rate is 25.8%, yoy-2.5pct, mainly due to the improvement of operational efficiency.

③ Depreciation of usage rights capital/ other rent and related expenses/ depreciation of other assets were 8.1%/2.3%/3.9%, yoy-2.0pct/+0.2pct/-0.8pct, respectively. The decline in the comprehensive rental cost ratio was mainly due to revenue side recovery contributions.

The company is committed to increasing returns for shareholders. As of 2023, 1) approximately HK$150.0 million was used to repurchase shares in the market, and 2) the Board recommended a final dividend of HK$0.15 per common share (approximately HK$215.5 million in total), with a payout ratio of approximately 43.1%. In the future, it is planned to maintain a dividend ratio of not less than 40% of the annual profit due to equity shareholders.

Profit forecasting and investment suggestions: Optimistic about Taier's subsequent steady expansion, encouraging hotpot optimization and adjustments to further speed up store opening and profit margin improvement, and pay attention to the progress of franchise store expansion. The company's net profit for 24/25/26 is estimated to be 5.4/6.5/760 million yuan (considering the weak current consumption environment, the previous 24/25 net profit forecast was lowered by 57/72 million yuan). The current stock price corresponding to the 24/25/26 PE is 13/11/9X, maintaining a “buy” rating.

Risk warning: food safety risk; same-store restoration falls short of expectations; new brand development falls short of expectations