occurrences
On 2024/03/28, Babi Foods released its 2023 annual report.
Key points of investment
Revenue continues to grow, and profitability is under pressure
The company's total revenue in 2023 was 1,630 billion yuan (same increase of 7%), mainly due to the increase in the number of company stores/rapid growth in the group meal business outside East China. Net profit of the mother was 214 million yuan (same decrease of 4%), after deducting non-net profit of 178 million yuan (same decrease of 4%). It was mainly due to the increase in labor costs, including equity incentive expenses, and depreciation expenses for additional production capacity that increased slightly faster than revenue growth. Among them, the 2023Q4 company's total revenue was 444 million yuan (up 5% from the same period), net profit attributable to mother was 59 million yuan (same decrease of 33%), and deducted non-net profit of 56 million yuan (same increase of 19%). On the profit side, in 2023, the company's gross margin/net margin was 26.35%/13.21%, respectively; the 2023Q4 gross margin/net margin was 26.98%/13.50%, respectively, -1 pct/-7 pct, respectively. As capacity utilization increases, there is still room for further improvement in gross margin. On the cost side, the company's sales expense rate/management expense ratio in 2023 was 5.64%/7.28%, respectively, -0.1 pct/+0.04 pct year on year; the 2023Q4 sales expense rate/management expense ratio was 5.57%/5.74%, respectively, -1 pct/-2pct, respectively. The company's cost investment is adapted to the operating plan, and the overall subsequent cost investment may remain stable. According to the annual report, the company plans to distribute a cash dividend of 4 yuan for every 10 shares to all shareholders. Cash dividends account for 47% of net profit to mother (36% for the same period in 2022), and the dividend ratio has increased markedly.
Expanding stores to make up for pressure on single stores, and prepared dishes are expected to help expand group meals
By product, revenue for noodles, rice, fillings, and outsourced food products in 2023 was 6.62/414/394 million yuan, respectively, 1%/18%/4% compared with the same period last year. By channel, franchise sales/direct store sales/group meal channel sales revenue in 2023 was 1,252/0.27/330 million yuan, respectively, 10%/-17%/-1% compared with the same period. As of 2023Q4, the company had 5043 franchisees, a net increase of 570 from the beginning of the year. The company made up for the single-store revenue gap through the expansion of the number of stores. The franchise channel grew steadily, while the group meal channel was constrained by increased supply-side competition and recovered slowly. In 2024, the company aims to expand steadily on the basis of 1,000 new stores. At the same time, it also pioneered the pre-prepared food and semi-finished products business into the Little B restaurant side, providing a second growth curve for group meals. Long-term group meals are expected to return to a 20% growth center. Looking at the subregions, revenue for East China/ South China/ Central China/ North China/ other regions in 2023 was 13.56/1.20/0.97/0.54 billion yuan, respectively, compared with 2%/30%/60%/22%/-16%, respectively. As the construction progress of the Shanghai R&D Center/Wuhan Manufacturing Center progresses, production capacity in the East China/Central China region is fully guaranteed, and it is expected that more group meal orders will be accepted in the future.
Profit forecasting
We are optimistic that the company will continue to maintain its pace of opening stores, and that operating efficiency will continue to improve under the advantage of scale. At the same time, the smooth entry into group meals will also contribute new performance growth points to the company. According to the annual report, EPS for 2024-2026 is expected to be 1.02/1.17/1.30 yuan respectively, and the current stock price corresponding to PE is 16/14/13 times, respectively, maintaining a “buy” investment rating.
Risk warning
Macroeconomic downturn risks, store openings falling short of expectations, group meal growth falling short of expectations, risk of rising raw materials, etc.