Incident: Babi Foods released its 2023 annual report. The company's revenue for 2023 was 1,630 billion yuan, up 6.9% year on year, and realized net profit of 214 million yuan, down 4.0% year on year. Of these, 4Q23 achieved revenue of 444 million yuan, up 4.6% year on year, and net profit to mother was 59 million yuan, down 33.5% year on year. The performance was in line with market expectations.
Nationalization continues to deepen, and group meal revenue still has potential for growth: 1) By category, the core category of pasta/filling/outsourced food achieved revenue of 6.62/4.14/ 394 million yuan in 2023, a year-on-year growth rate of 0.6%/18.4%/4.0%. The lower growth rate of pasta revenue is a high base due to the increase in group meals in 2022 and the relatively high share of rice and noodle revenue during the pandemic insurance period. In addition, the company launched a series of high-quality, high-standard, high-customer unit price products, such as handmade beef buns. Sales of new products increased 79% over 2022, which is expected to further consolidate the potential for pasta growth; 2) By channel, franchising/direct/group meals achieved revenue of 12.5/0.3 billion yuan in 2023, a year-on-year change of +10.0%/-16.6%/-0.6%. Group meal revenue declined slightly year-on-year. This is a high base and customer structure adjustment in 2022, as the company adopted measures such as product innovation, new customer development, and capacity utilization The group meal business still has sufficient potential for growth; 3) Looking at the subregion, East China/South China/North China/Central China achieved revenue of 13.5/1.2/0.5/100 million yuan in 2023, an increase of 2.4%/29.8%/21.8%/60.5% over the previous year. The East China region is already quite mature, while the East China region still maintains considerable growth momentum.
The nationalization of stores is steadily expanding, and the number of stores in East China/South China/Central China/North China is expected to pick up: At the end of 2023, the number of stores in East China/South China/Central China/North China was 3345/727/803/168, with a year-on-year net change of +216/+264/+92/-2. The total number of stores crossed the 5,000 store mark, and the company developed new markets such as Hunan, Anhui, and Lianyungang. Furthermore, in September 2023, the company successfully reached a strategic investment cooperation with Nanjing's dominant breakfast chain brand “Steamed Full Flavor”. Babi is expected to obtain 51% of the shares in the target company and achieve a financial merger in 2Q24, which will help increase Babi's share in Nanjing and other northern Jiangsu markets. The company's single-store revenue is still declining, but the decline has narrowed. The average single-store revenue in 2023 fell 2% year on year, mainly due to the rapid opening strategy. As the proportion of lunch and dinner and takeout continues to increase, the company's single-store revenue is expected to enter an upward channel.
Gross margin was under phased pressure, but continued to improve month-on-month: in 2023, the company's gross margin was 26.35%, down 1.36 pcts year over year. Mainly due to annual settlement rebate measures, the gross margin for group meals declined a lot, but the company's overall gross margin continued to improve month-on-month. In 2023, the company's sales expense rate/management expense ratio changed year-on-year - 0.08/+0.04pct to 5.64%/7.28%, and the rate control was good. In addition, due to fluctuations in the share price of Dongpeng Drinks held by the company, there was a fair value change profit of 14.16 million yuan in 2023. Overall, the company's net interest rate to mother was 13.11% in 2023, down 1.47 pcts year over year.
Profit forecast, valuation and rating: Considering the intensification of competition in the breakfast channel, we lowered our 2024-25 net profit forecast to the mother of 239/273 million yuan, down 7%/11% from the previous one. The net profit forecast for 2026 was 331 million yuan. The current stock price corresponds to PE 18/16/13 times, but the company's nationalization continues to deepen, single store revenue is expected to rise steadily, and the group meal business has potential for development, maintaining a “buy” rating.
Risk warning: Downstream demand is weak, cost increases exceed expectations, and store expansion falls short of expectations.