Key points of investment:
Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 1.63 billion yuan, a year-on-year increase of 6.9%, achieved net profit of 210 million yuan, a year-on-year decrease of 4%, and realized net profit without deduction of 180 million yuan, a year-on-year decrease of 3.8%. It is estimated that 23Q4 achieved revenue of 440 million yuan, a year-on-year increase of 4.6%, achieved net profit of 60 million yuan, a year-on-year decrease of 33.5%, and realized net profit without deduction of 56 million yuan, an increase of 19.3% over the previous year, in line with the previously released performance report. The dividend plan is 4 yuan for every 10 shares, and the dividend rate is 46.8%.
Investment rating and valuation: Taking into account the weak recovery in demand, the 2024-25 profit forecast was slightly lowered, adding 2026. The net profit for 2024-26 is estimated to be 250 million, 290 million, and 340 million (260 million and 310 million in the previous 24-26 years), respectively, +17%, and +16%, respectively. The current stock price corresponds to 2024-26 PE at 17x, 14x, and 12x, respectively, maintaining an increase rating. In the short term, single-store revenue in all regions has been steadily recovered, store opening plans are progressing in an orderly manner, and profitability is expected to continue to improve as capacity utilization increases month-on-month. In the medium to long term, with the implementation of production capacity, the company's store opening speed, coverage area and group meal business are expected to be strengthened. The company is expected to achieve two-wheel drive for revenue-side stores and group meals through methods such as endogenous+outreach, franchise+group meals, takeout+lunch and dinner, etc., and comprehensively increase the revenue and number of stores in a single store, and unleash the potential for nationwide expansion.
Group meal revenue was under pressure in '23. According to the 2023 Annual Report, in terms of franchising, revenue in 2012 was 1.25 billion yuan, up 9.9% year on year, of which 1) 1,319 new franchisees were opened, and 749 stores closed, a net increase of 570 to 5043 for the whole year; 2) Single store revenue was 248,000 yuan/home, down 2.5% year on year, mainly due to a) lower demand recovery than expected, b) the revenue of single stores in the foreign port region was lower than expected, but the number of stores increased. Looking ahead to 2024, the company is expected to maintain a similar scale of store opening tasks, but the East China region will focus more on recovering single-store revenue. In terms of the group meal business, revenue in 23 was 330 million, down 0.6% year on year. It was mainly due to pressure on the 23Q2 East China group meal business performance. However, 23H2 improved month-on-month, and group meal revenue in the 23Q3 and 23Q4 quarters increased 31% and 10%, respectively. Looking ahead to 2024, on the basis of stabilizing enterprise cafeterias and food supply chain channels, the company will continue to develop segmented group meal channels such as restaurant chains, convenience store chains, and new retail. Group meal revenue performance is expected to recover in '24.
Profitability has been under pressure for 23 years, but it has improved quarterly. According to the 2023 annual report, the company's gross profit margin in 2023 was 26.35%, down 1.4 pct from the previous year. This was mainly due to pressure on revenue performance in the first quarter of '23, weakening scale effects, and a downward impact on the commissioning of the Nanjing plant. However, looking at a single quarter, gross margins for the four quarters of '23 were 24.2%/26.7%/26.93%/26.98%, respectively, showing an improving trend. In terms of cost ratios, sales, management, R&D, and finance cost ratios were basically flat/+0.2pct/-0.2pct year-on-year, respectively. Overall, the company's net interest rate after deduction in '23 was 10.9%, down 1.2 pct from year to year, but it also showed a quarterly improvement trend. Looking ahead to 24 years, the company expects to lock the price of pork, and pressure on the raw material side is expected to be manageable. Although the Dongguan plant is expected to be put into operation in the near future, it will take on existing customers and businesses in South China, and it is expected that the impact of commissioning on profit margins will be limited. As the utilization rate of production capacity at the Nanjing base continues to improve, the company's profitability is expected to continue to improve in 24 years.
The catalyst for stock price performance: store expansion exceeds expectations, group meal business exceeds expectations, and single-store revenue increases
Core hypothetical risks: the promotion of new products falls short of expectations, the expansion of stores in South China and North China is blocked, food safety risks