2023 successfully reversed losses, adjusted profit of 280 million
The company achieved revenue of 1,209 million/yoy -22.5% in '23, mainly due to direct store transfers and loss of single store revenue; net profit of 181 million yuan (vs loss of 1.01 billion yuan in '22), adjusted net profit of 280 million yuan (vs22 loss of 241 million). The difference between adjusted profit and profit due to adjustments caused by the closure of direct-run pubs was mainly due to a loss of 99.69 million yuan, and the adjusted net interest rate was 23.2%. 2H23 revenue of 499 million/yoy -27.3%, adjusted net profit of $103 million, adjusted net interest rate of 20.7% (vs1h: 25%). The company is accelerating the promotion of asset-light conversion. Nationalization expansion is expected to accelerate in 24 years, and the acceleration of the introduction of alcoholic beverages will drive product structure optimization. Looking at the steady growth in demand for taverns over the long term, the company, as a scarce leader, may benefit more from pattern optimization. The company plans to pay 400 million dividends in '24, with a dividend rate of 221.06%. It is expected to maintain a high dividend rate in the future. EPS is expected to be $0.16/0.20/0.28 for 24-26, and the target price is HK$4.16, corresponding to 24X 24E PE, which is higher than comparable company Bloomberg's agreed expectation of 18X, and the rating was downgraded to “increase holdings”.
The revenue from the asset-light business grew rapidly, and the average daily sales of the same store were under pressure. With excellent gross margin, direct pub revenue of 2023 was 1,103 million/yoy -29%, franchise revenue was 105 million/year over year +830%. Franchise cooperation services and supply chains accounted for 5.9/ 2.8% of total revenue respectively, accounting for 8.7% of total franchise revenue, yoy+8pct. In '23, both direct and franchised stores sold 7,300 yuan/yoy +4.29% per day, mainly driven by second- and third-tier cities. Partner stores sold 7,100 yuan a day, reaching 9,400 yuan in first-tier cities, and 7,700 yuan and 6,900 yuan in second-tier, third-tier and lower cities respectively. The company's overall average daily sales at the same store is 9,300 yuan/yoy -8.8%, which we think is mainly due to changes in the business district and changes in consumer intentions. Profitability remained high for 23 years. The gross profit margin of self-owned alcohol was 75.7%, the gross margin of Sanfang Liquor increased by 4.7 pct to 54.8%, and the increase in the share of drink-based alcohol sales led to an increase of 6.1 pct to 70.1%.
Partner stores are expanding rapidly and are expected to accelerate further in 24 years
The company launched the Hi Beer Partner Program in June '23 to further transition to asset light. Using a smaller store model, the efficiency of the original store was improved. The average daily floor space efficiency of partner stores in '23 was 34 yuan/square meter, which is higher than the 19/20 yuan/㎡ of direct management and concessions. As of 24.3.29, a total of 383 partner stores have been signed, 188 have been opened, covering a total of 136 first-tier to county-level cities (69 inventory/67 new markets).
By the end of '23, the number of company stores was 479 or -88, with 476 domestic stores, accounting for more than 50% of the number of stores in third-tier cities. The number of direct-managed/franchised/partner tavern stores in 23 years reached 255/92/132, compared to -398/-22/+132. Since the beginning of '24, it has maintained a relatively fast pace of exhibition stores. As of 24.3.19, the net number of new stores was 24. The number of franchised stores and direct-run stores continued to be reduced by 8 and 19, respectively.
Aggressive adjustments to seek expansion, target price of HK$4.16
Considering the company's closure of many direct-run stores, we expect EPS to be 0.16/0.20/0.28 yuan in 24-26. Based on 24X 24E PE, the target price is 4.16 HKD, higher than the 24-year comparable company Bloomberg's unanimous estimate of 18X. Considering the continued demand in the pub industry, leading companies are optimizing the pattern of benefits and maintaining the premium rate. In view of the large fluctuating impact of the business model change on subsequent revenue and profits, the daily sales growth was under pressure, and the rating was downgraded to “increase holdings.”
Risk warning: The expansion of the new model falls short of expectations, market competition intensifies, and residents' willingness to spend is declining.