Incident: The company announced full-year results for 2023, which achieved operating income of 1.21 billion yuan/ -22.5% in 2023 (previously estimated revenue of 11.7-1.22 billion yuan), mainly due to the company's strategic transformation to an asset-light model and active adjustment of the direct-managed store network; a store-level gross profit margin of 70.1% /+6pct; adjusted net profit of 280 million yuan, compared to -240 million yuan for the same period last year (previous performance forecast estimated net profit of 2.7 to 300 million yuan), corresponding to a net profit margin of 23.2% to the mother.
Stores: Strategic transformation to platform-based companies and asset-light models, actively adjust existing store networks, and vigorously develop partner store networks.
1) In terms of opening stores: 288 to 479 stores were closed in 2023, of which 114 were net closed in 2023H1. Following the rapid and smooth progress of the Hi-Beer Partner Program, the company's store network grew to 503 as of March 19, 2024, and will continue to expand at an accelerated pace.
As of March 27, 2024, Hi-Beer Partner stores have signed a total of 383 contracts, of which 188 have been opened, covering a total of 136 first-tier to county-level cities. Of these, 69 cities are stock markets and 67 are new markets.
2) Store performance:
① Daily sales & performance: In 2023, the daily sales of direct-run and franchised partner stores were 0.73 million yuan/ +4%; Hi Beer Partner Tavern had an average daily sales of 0.71 million yuan. In 2023, the overall average daily flat rate was 21 yuan/square meter, of which Hi-Beer partner's Ping efficiency was 34 yuan/square meter, with better models and lighter assets.
② Same-store performance (333): In 2023, same-store sales increased 5.3% year-on-year, but the average daily sales of the same store were -8.5% year-on-year, and the average daily sales of a single store were -8.8% year-on-year.
Profitability has improved, and the cost side is expected to be further optimized. The company's store-level gross profit margin was 70% /+6pct in 2023, and the supply chain bonus ratio of the franchise model is expected to increase further in the future, thus driving the gross margin increase. Employee benefits and personnel service expenses fell 70% year on year, and the employee cost ratio decreased by 40 pct to 25% year over year, mainly due to ① share payments without equity settlement in 2023, compared to 500 million yuan in the same period in 2022; ② the number of employees declined due to stock network adjustments. The depreciation of right-of-use assets accounts for 9% /-11pct, mainly due to the termination of leasing contracts for several directly-managed taverns due to strategic transformation.
Profit forecasting and investment suggestions: The company actively seeks changes, begins a new affiliate model to be asset-light, and looks forward to further replication of the company's supply chain and comprehensive capabilities in the broad space of the sinking market. Following the progress of new business format exploration and further confirmation of fundamental trends, we expect the company's net profit to the mother of 2.25/2.94 billion yuan in 2024-2026. The current stock price corresponds to PE 17/13/10X, maintaining the “recommended” rating.
Risk warning: store sales recovery falls short of expectations, franchise expansion process falls short of expectations, industry competition intensifies, etc.