Event: Helens announces 2023 results on March 28. Revenue was 1.21 billion yuan, down 22% year on year; gross profit margin was 70.2%, up 6.3 pct year on year; adjusted net profit was 280 million yuan, adjusted net interest rate of 23.2%. Both revenue and profit are in line with the profit guidelines. The company will pay a final dividend of 0.3153 yuan/share, totaling about 400 million yuan.
Comment: The share of alcoholic beverages as beverages continues to rise, and 2024 will be the year of product creation. Revenue in 2023 was $1.21 billion, down 22% year over year. (1) By product: The revenue of direct-run taverns was 1.1 billion yuan, down 29% year on year. Of these, revenue from own products accounted for 78.3%, up 0.9 pct year on year.
Alcoholic beverages accounted for 58.1% of our own products, an increase of 9.5 pct over the previous year. Of drink-based alcohol, sharing/bottling accounts for about 40%/20% of total revenue, respectively. The company defines 2024 as the product year, and plans to strengthen the barriers of differentiation through the promotion of new products on the basis of continuous iteration to increase gross profit. (2) Channel division: Franchise cooperation revenue accounted for 5.9%, an increase of 5.2 pct over the previous year; revenue from sales of goods to partner stores accounted for 2.8%. (3) Daily sales of single stores: The average daily sales of direct-run and franchised cooperative pubs was 0.73 million yuan, an increase of 4% over the previous year; among them, the average daily sales of first-tier, second-tier, third-tier restaurants and lower cities were 0.75/0.71/0.74 million yuan each, with year-on-year changes of -1%/8%/1%. Hi Beer Partner Tavern sells 0.71 million yuan per day, of which the average daily sales of first-tier, second-tier, third-tier restaurants and lower cities are 0.94/0.77/0.69 million yuan each. (4) Same store: 333 in the same store, with average daily sales of 0.93 million yuan, a year-on-year decrease of 8.8%.
Continue to promote platform-based transformation. The company opened 157 new pubs and closed 445 in 2023, bringing the total number of pubs to 479 at the end of the period. (1) Branch level: In addition to the 3 overseas locations, there were 38/186/252 rooms in first-tier, second-tier, third-tier cities and below, a decrease of 42/186/62 compared to the previous year.
As of March 19, the total number of pubs was 503, a net increase of 24 over the end of 23, with most of them in third-tier cities. (2) Sub-model: There are 255/92/132 direct-operated/franchised/Hi-Beer partner pubs, compared with the changes of -398/-22/132 at the end of '22, and 236/84/183 as of March 19. The number of direct-managed and franchised pubs declined further.
The Hi Beer partner model will enter a phase of rapid expansion. (1) Small area+high floor efficiency: The investment amount of Hi Beer Partner's tavern is about 1 million, and the threshold is lower than the previous store model; the pub area was halved to about 200 square meters, and the daily floor efficiency was 34 yuan per square meter in 2023, exceeding the 19/20 yuan per square meter of direct-managed/franchised cooperative pubs. The smaller area and higher floor efficiency broadened the scope of location selection for Hi Beer Partner Taverns. (2) Single store model: Hi Beer Partner Tavern has daily sales of about 70,000 yuan, capital guarantee points of about 30,000 yuan, gross profit margin of 65%, and payback period of about 18 months. (3) Sharing model: In order to encourage partners' enthusiasm, the company began switching from the previous gross profit gradient extraction model to a supply chain price increase (price increase only for own products, accounting for about 5%-6% of the total revenue of the pub) +monthly management fee (currently temporarily exempted) model.
(4) Expansion: The company guides the opening of 400 new Hi Beer partner pubs in 24 years.
The cost reduction effect was obvious, and the profit structure improved markedly. (1) Gross profit margin: The year-on-year increase was 6.3 pct to 70.2%, mainly due to the increase in the share of self-owned alcohol and the increase in the gross profit margin of direct-run pubs, and the reduction in marketing activities increased the gross profit margin of the three parties, but this was partially offset by the 6.99 yuan drainage campaign in the middle of the week in the second half of the year. The gross margin of own/third party alcohol was 75.7%/54.8% each, an increase of 0.1/4.7 pct. (2) Expense ratio: After deducting payment of shares, the labor cost rate was 24.7%, a year-on-year decrease of 7.4pct; the discounted fee ratio was 16.5%, a year-on-year decrease of 16.6pct.
(3) Profit margin: adjusted net profit of 280 million yuan, adjusted net interest rate of 23.2%. The company declared a final dividend of 0.3153 yuan/share, totaling approximately 400 million yuan.
Profit forecast and valuation: Based on the company's adjustment strategy, shrinking direct management, and using asset-light operations as the main future development direction, we lowered the company's 24-25 revenue by 34%/20% to 10.5/1.49 billion yuan each, introduced 26-year revenue of 1.95 billion yuan, with year-on-year changes of -13%/42%/31%; lowered 24-25 per cent of adjusted net profit of 55%/58% each to 2.1/250 million yuan each, and introduced adjusted net profit of 330 million yuan and adjusted net interest rates of 19.7%/16.5%/16.9% each. We maintained the company's 24-year valuation of 25 times PE, corresponding to a target market value of HK$5.7 billion, and lowered the target price by 55% to HK$4.5 (the corresponding exchange rate was HKD/CNY = 0.9; the previous target price was HK$10.1), maintaining a superior market rating.
Risks: The economy is declining, competition in the industry is intensifying, and the expansion of pubs falls short of expectations.