Matters:
Haidilao announced its 2023 results, with revenue of 41,453 billion yuan (yoy +33.6%) and net profit of 4.499 billion yuan (yoy +175%) for the period, mainly due to revenue recovery and cost savings brought about by refined operations. Net profit margin 10.8% (23H1 was 12%). Large dividends, with an estimated payout of HK$0.824 per share in '23 (total dividends of $4,500.4 billion, accounting for 90% of net profit)
Commentary:
Slow down the opening of stores and keep the pace of opening small but lean stores. In 2023, 9 new stores were opened, 26 stores that were closed earlier resumed business, and 32 underperforming stores were closed at the same time. By the end of 2023, the company had operated 1,374 Haidilao restaurants (23H1 was 1,382), 1,351 in mainland China, and 23 in Hong Kong, Macao and Taiwan.
To strengthen innovation, the headquarters set up an innovation and entrepreneurship office to adjust the brand plan, and lay out various categories such as fast food, yakiniku, and Chinese meals in addition to the main brand. Focus on customer dining experiences, concert drainage activities. Dances such as “Subject 3” are popular on social media. At the same time, they have co-created summer supper events with famous IPs, effectively increasing the nighttime turnaround rate. Innovate the store format and launch Haidilao's “Beef Workshop”, “Seafood Workshop”, “Lamb Workshop”, etc., as well as camping hot pot restaurants and campus hot pot restaurants. In terms of takeout services, business lines such as Haidilao - Happy Delivery Feast and Haidilao Hot Pot Meals have been launched to enhance scenario coverage.
Thanks to brand strength and refined operations, the overall number of same-store turnover increased markedly: the number of same stores (based on continuous operation for more than 300 days) was 950, and the number of same-store turnover was 3.9 times (3.0 in the same period last year). Among them, first-tier cities rose 0.9 times (3.2→4.1), third-tier cities rose 0.9 times (2.9→3.8), and the Hong Kong, Macao and Taiwan regions rose 0.7 times (3.5→4.2).
Overall, the average turnover rate was 3.8, with an average turnover rate of 3.0 in the same period last year, of which 3.7 new stores were opened (2.3 times in the same period last year) and 3.8 times (3.0 in the same period last year); by city breakdown, all tier cities increased their turnover increased 0.8 times (3.0 → 3.8), second-tier cities increased 0.9 times (3.0 → 3.9), and third-tier cities increased 0.7 (2.9 to 3.6). The Hong Kong, Macao and Taiwan regions increased by 0.7 (3.5→4.2).
Due to increased promotions, customer orders declined. The average customer unit price for 23H1 was 103 yuan, the annual customer unit price was 99.1 yuan, 105.7 yuan for first-tier cities (114.2 yuan for the same period last year), 98.3 yuan for second-tier cities (104.3 yuan for the same period last year), 92.8 yuan for third-tier cities (97.9 yuan for the same period last year), and 202.8 yuan for Hong Kong, Macao and Taiwan (197.4 yuan in the same period last year).
Although customer orders are under pressure, thanks to internal management adjustments and operational efficiency improvements, the cost side has been optimized. Among them, food costs/COGs account for -0.7pct to 40.9%; employee costs account for -1.5pct to 31.5%; rent remains unchanged at 0.9%; and the discount ratio is -3.6pct to 7.1%.
Investment suggestions: We emphasize that the company has a comprehensive layout in the catering industry, leading infrastructure, advanced incentive mechanisms, and strong brand power. Opening up and joining will have a positive impact on the company's profit margin. During the pandemic, we will actively adjust strategies, slow down store opening, correct models, change assessment methods, etc., and continue to improve operations. We raised the 2024-2025 EPS forecast to 0.98 yuan and 1.08 yuan (previous values were 0.91 yuan, 1.05 yuan). The current stock price corresponding to PE is 16 times, 15 times, and 14, respectively times. PE was given 20 times in 2024, corresponding to a target price of HK$21.22 (current exchange rate), maintaining the “Recommended” rating.
Risk warning: Too fast encryption has caused the collapse to exceed expectations; food safety risks.