Core view: Due to slow recovery in demand and mistakes in opening direct stores in the early stages, the performance of the same stores was average throughout the year. The company's centralized clean-up of direct-run stores with high costs and poor floor efficiency led to a decline in revenue. Since the second half of '23, the company's asset-light project “Hippi Partner” has seen substantial progress, but it will take time to observe the profit stability of franchisees and the impact of the transformation and franchise model on profits at the group company level.
The profit forecast was adjusted and downgraded to the “Overweight” rating. As the number of store closures for the whole year exceeded expectations and demand recovery was relatively lackluster, we adjusted our profit forecast. We estimated the company's net profit to be 220/290 million yuan for 24-25 (the previous forecast was 36/550 million yuan for 24-25), and the adjusted net profit growth rate for 23-25 was 22/ 31%. Considering the current macro environment, daily sales growth is relatively weak, and after switching to the franchise model, short-term profit fluctuated greatly, and the rating was lowered to “gain weight”.
Demand recovery was weak throughout the year, and performance fell short of expectations. In 2023, the company's revenue was 1.21 billion yuan, down 22% year on year, achieving net profit of 180 million yuan and adjusted net profit of 280 million yuan, reversing year-on-year losses, but it fell slightly short of our expectations (we expected adjusted net profit of 300 million yuan). The main reason is that the number of direct-run stores closed more than expected, and the second half of the year was affected by weather and other reasons, which put pressure on daily sales of pubs.
The same stores are under pressure, and directly-managed stores have been adjusted in depth. Looking at the same store, the performance of the same store was weak throughout the year. In 2023, the average daily sales of the company's single store reached 0.93 million yuan, a year-on-year decline of 8.8%. Judging from the number of stores, direct-run stores have been deeply adjusted. By the end of 2023, the number of directly managed stores by the company was 255, and 398 stores were closed throughout the year. Since the performance of some stores still falls short of expectations, it is expected that the adjustment of direct-run stores has not yet been completed.
The “Hippi Partner” project is progressing smoothly. By the end of 2023, the number of “Hippi Partners” stores reached 132. Since the launch of the small-store partner store in mid-2023, the store expansion has made substantial progress.
If the profit stability of subsequent franchisees is verified, the company's growth ceiling will be reopened.
Risk warning event: Daily store sales recovery fell short of expectations; store expansion fell short of expectations.