Helens announced the full year results for 2023. The company's operating income in '23 was 1,209 million yuan/YoY -22.49%, with net profit attributable to mother of $181 million/$1,601 million in '22, plus loss of equity settlement of share payments, pub optimization, and adjustment losses ($100 million in tavern optimization and adjustment, with no equity settlement share payments; 22-year pub optimization and adjustment loss of $857 million; income after paying 503 million yuan for equity-settled shares) At 241 million yuan, despite a reduction in revenue, adjusted net profit turned a loss into a profit. The reasons for the reduction in revenue scale were mainly due to the company's transformation to a platform-based company and asset-light model in 2023, expanding Hi Beer Partner's taverns and reducing the number of original pubs. By the end of '23, the number of company pubs was 479, compared to 767 at the end of '22; of these, 255 were directly-managed pubs and 653 were -60.95% compared to the end of '22; 92 franchised cooperative pubs and 114 were -19.30% from the end of '22; the Beer Partner Program started in '23 At the end of the year, there were 132 Hi Beer partner stores. Net profit attributable to mother turned a loss into a profit, mainly benefiting from raw materials and consumables expenses, depreciation of right-of-use assets/depreciation of property plant and equipment, short-term leases and other related expenses, employee benefits and personnel service expenses, and increased financial revenue due to a reduction in the number of pubs.

The advantages of Hi Beer Partner's new single-store model are evident. The average daily sales/overall store efficiency in Tier 1 and 2 cities are superior to the stock of direct-run and franchised cooperative pubs. The company's Hi-Beer Partner's new single store model has the following advantages: 1) the new single store model has a small area and relatively low margin, so it has strong risk resistance and more profit space; 2) By mobilizing franchisee resources, it gains advantages in store location selection, customer acquisition resources, and marketing channels in corresponding cities/regions to enhance store business performance. Benefiting from the complementary advantages of the company and franchisees, the company's Hi Beer Partners had excellent average daily sales performance in high-tier cities at the same time. The average daily sales of first-tier and second-tier city pubs and Hi-Beer partner pubs were 0.94/ 0.77,000 yuan respectively, which was +25.33%/+8.45% of daily sales compared to the original tavern model; smaller store area and higher average daily sales compared to the original pub model. The average daily floor efficiency is 34 yuan/square meter, compared to direct management Taverns/Franchise Taverns +78.95%/+70.00%.

Investment suggestions: Focus on the three directions that can bring room for growth in the company's subsequent development: 1) Store matrix optimization: transformation to a platform-based company and asset-light model, the existing directly-managed pub/franchise pub matrix continues to be optimized, and the profit margin of existing high-quality pubs is expected to increase; 2) Helens Yue Xin's store model is gaining strength. The restaurant business in the sinking market is still in the development stage. Helens Yue can be used as an upgrade replacement for business formats such as sinking market lining/dining bars, etc., and there is plenty of room for growth. 3) The “Hi Beer Partner” cooperation model gained strength: The company launched a new cooperation model and single store model through the “Hi Beer Partner” program in June 2023. Hi Beer Partner's single store has low cost insurance and strong profitability characteristics. The average daily sales/overall store efficiency in Tier 1 and 2 cities all surpassed the original taverns. Currently, it is still in a phase of rapid expansion. As of March 19, '24, the number of Hi Beer Partners has reached 183. We are optimistic that it will continue to empower the company's performance growth/brand reputation optimization/brand coverage expansion. The company is expected to achieve profit of 2.63/4.10/493 million yuan in 24/25/26, corresponding to a PE value of 14x/9x/8x, and maintain a “recommended” rating.

Risk warning: Competition in the industry heightens the risk, and the subsequent business performance of Hi Beer Partners falls short of the expected risk.