Incident: The company released its 2023 annual report, achieving full year operating income of 1,630 million yuan, net profit of +6.89% year on year, -4.04% year on year, net profit minus 178 million yuan, -3.8% year on year; of these, 23Q4 achieved operating income of 444 million yuan, +4.58% year on year, net profit to mother of 59 million yuan, or +19.25% year on year. In '23, the company bucked the trend and achieved a steady increase in scale.
Franchise sales channels continue to accelerate, and the opening of the Hunan market catalyzes the expansion of stores in the South China region: the company's annual franchise sales/direct store sales/group meal sales revenue for the full year of 2023 was 12.52/0.27/330 billion yuan, +9.95%/-16.59%/-0.63%. Among them, the year-on-year decline in group meals was mainly due to the company's participation in Shanghai Insurance Supply in '22 bringing a high base; Q4's franchise sales/direct store sales/group meal sales revenue was 3.41/0.07/90 billion yuan respectively, year on year + 3.43%/+1.41%/+9.70%. Store side: As of 2023, the total number of franchised stores was 5043, a net increase of 570, including 1,319 new stores and 749 closed stores, which exceeded expectations and achieved the target of opening 1,000 stores. In '23, there was a net increase of 216/264/92/-2 stores in East China/South China/Central China/North China respectively. There was a net increase of 73 stores in Q4 (289 stores opened and 216 stores closed). Since the company officially opened the regional market in Hunan Province in June, the company's 23Q3/Q4 net increased the number of stores by 107/56 in the South China region, respectively, which is a faster growth compared to other regions.
The growth of epitaxial expansion progressed further, and the merger and acquisition of “Steamed Full Flavor” had a strong layout in the Northern Jiangsu Market Company reached a strategic investment cooperation with Nanjing's dominant breakfast brand “Steamed Full Flavor” in September 23, and signed an equity transfer agreement in January '24. The company will acquire 51% of the shares in the target company and combine them in the second quarter of '24. The company has long implemented a growth strategy of going hand in hand with endogenous extension. This merger and acquisition project is the second epitaxial investment after the company's 22-year merger and acquisition. Less than two years after the previous investment, it has achieved revenue of nearly 100 million yuan and 803 stores (including 550 Babi brand stores) in central China. We believe that this merger and acquisition will, on the one hand, consolidate the company's layout and market share in Nanjing and other northern Jiangsu markets; on the other hand, it can improve the capacity utilization rate of the company's Nanjing plant, increase production and operation efficiency, and strengthen the company's core competitiveness in the East China market.
The average revenue of franchise stores is under pressure in the short term, and continuous optimization of the single-store model drives the business development company's average revenue of franchise stores in 2023 to be 248,200 yuan, -2.48%. It is estimated that the main factors are: 1) opening more new stores will lower average income; 2) the Xintuo region is rapidly expanding stores, but the store efficiency is lower than traditional dominant markets. Furthermore, end consumer demand continues to recover, and the company is expected to hedge against the decline in single-store revenue by speeding up store expansion. The company further promotes refined store management and optimizes communication mechanisms with franchisees.
At the same time, the company will continue to optimize the product structure and store type iteration, add products for different periods of time and new store types for a full time period to meet the diverse needs of consumers, further optimize the single-store model, and promote the company's business development.
Group meals are under pressure as a whole, with fair value fluctuations interfering with the overall gross margin of the parent net profit company in 2023, -1.4pcts year-on-year, 10.9% year-on-year net interest rate, -1.21pcts; by business, the gross margins of the franchise business/group meal business/direct management business were 26.97%/20.81%/59.93%, respectively, -0.01/-5.51/-2.89pcts. The gross margin of the franchise business is relatively stable, and the group meal business is under pressure, mainly due to last year's high base factors. Overall gross margin structure.
The revenue from the change in fair value of the company was 14.1611 million yuan, a year-on-year decrease of 20.954 million yuan. It was mainly due to fluctuations in the secondary market for the company's holding of Dongpeng Beverage shares. Without considering changes in fair value, we expect the company's net profit to be $2.43/2.91/333 million for 2024 to 2026, respectively.
The product matrix continues to be enriched. Innovative technology enhances core competitiveness. The company is deeply involved in product development and innovation, launched more than 100 products centered on pasta, and developed more than 60 new products during the period. Of these, 31 were put on trial sale. Sales of the new SKU increased 79% year-on-year. At the same time, the company pioneered “frozen frying pan embryo technology” to overcome technical difficulties in the industry and highlight the company's excellent innovation ability. Furthermore, through its own production channel endowment, 11 pre-prepared food products were launched in December 23, which is expected to contribute additional volume to the company's performance in the future.
Profit forecasting and investment advice
Based on the 2023 results, we adjusted the company's profit forecast for 24-25. The company's net profit for 24-26 is estimated to be 2.43/2.91/333 million yuan, respectively (the original forecast value was 279/337 million yuan), corresponding to the current stock price PE 18/15/13 times, respectively. Considering that the company has a strong market position in the market segment, it was reasonably given 25 times PE in 24 years, corresponding to a target price of 2,426 billion yuan, to maintain the purchase rating.
Risk warning
Risks of falling short of expectations in opening a store, drastic changes in raw material costs, increased industry competition, food safety risks