Incident: The company announced its 2023 results. In 2023, the company achieved revenue of 1,209 million yuan/yoy -22.49% and net profit to mother of 181 million yuan (year-on-year conversion of loss to profit); of these, 23H2 achieved operating income of 499 million yuan/yoy -27.28%, and net profit to mother of 0.23 million yuan (year-on-year loss turned profit).
Direct stores were adjusted, and the franchise model was transformed. 1) On the revenue side, the company's direct revenue in 2023 was 1,103 billion yuan/yoy -29%, franchise-related revenue of 105 million yuan/yoy +830%, and continued to adjust and optimize direct-run stores and vigorously develop partner stores over 23 years.
2) Looking at store openings, the company had 255 direct-run stores at the end of '23, a net decrease of 398; 92 franchised stores, a net decrease of 22; and 132 Hi Beer Partner stores. 3) Looking at the daily sales of single stores, the company's directly-managed and franchised cooperative pubs sold 7.3,000 yuan per day in '23 (7.5/7.1/7.4 thousand yuan in '22), of which the first-tier/second-tier/third-tier and below were 7.5/7.1/7.4 thousand yuan (7.6/6.6/7.3 thousand yuan in '22); the daily sales of Hi Beer Partners were $7.4/7.7/6.9 thousand yuan respectively; the overall average daily floor rate was 21 yuan/square meter, of which the direct-managed/franchised/hibeer partner was 19/20/34 yuan/34 yuan respectively Square meters, hi Beer partners have the best performance.
Improved gross margins+shrinking expense ratios led to an improvement in net profit margins. 1) The company's store level contributed 70.1% of gross profit margin in '23, +6.1pct, of which gross margin for own alcohol +0.1 pct, and +4.7pct for third-party brand alcohol; 2) The company changed to an asset-light model in '23, and related expenses contracted year-on-year, personnel expense rate/depreciation rate for property plant and equipment; 3) Improved gross margin and contraction of expenses led to a year-on-year improvement in the company's net interest rate in '23. 2% /YoY +38.6pct.
The Hi Beer Partner Program continues to advance, and an asset-light transformation can be expected. 1) The company launched the “Hi Beer Partner” program in June 23. As of the annual results announcement date, a total of 383 Hi Beer partner stores had signed up and 188 had opened; covering 136 cities, 69 of which were stock markets and 67 new markets. 2) Under the “Hi Beer Partner” model, by mobilizing high-quality external resources from partners, such as high-quality store locations, rich customer acquisition resources, etc., the company and partners can complement each other's advantages, which is conducive to improving the operating performance of the company's stores, the long-term development of the store, and the asset-light transformation can be expected.
We adjusted our net profit forecast for 23-25 to be $1.81/2.32 billion ($435/7.85/$1,026 million before adjustment), and the corresponding EPS for 23-25 was $0.14/0.18/0.21. Refer to the 24-year 18-fold PE valuation given by comparable companies, and maintain the purchase rating using the HKD/RMB exchange rate of 0.9055, corresponding to the target price of HK$3.65.
Risk warning
Single store operations fall short of expectations; store opening progress falls short of expectations; cost control falls short of expectations; competition increases risk