Key points of investment
Incident 1: The company released brand management data for the first quarter of 2024, including 1) Tai'er pickled cabbage fish: 584 stores as of 24Q1 (net increase of 6 in Q1); average daily sales growth rate of the same store was -13.9% year-on-year (hereinafter referred to as the same store growth rate), and the turnover rate/customer unit price was 3.9 times/73 yuan, respectively. 2) Hot pot: As of 24Q1, there were 66 stores (net increase of 4 in Q1); the year-on-year growth rate of the same store was -34.8%, and the turnover rate/customer unit price was 3.0 times/116 yuan, respectively. 3) Jiumaojiu Restaurant: 75 stores as of 24Q1 (net increase of 2 in Q1); the year-on-year growth rate of the same restaurant was -4.1%, and the turnover rate/customer unit price was 3.0 times/57 yuan, respectively.
4) Other brands: Lai Mei/Xianyue Mu/Mountain Mountain Sour Soup Hot Pot/Uncle Nahwei is a master chef. The number of stores is 7/1/2/1, respectively.
Incident 2: The company believes that the recent transaction price does not reflect its intrinsic value, and plans to publicly repurchase shares in the market at a maximum amount of HK$100 million (about 1.5% of the latest market value) in due course. The company's large-scale repurchases are ahead of schedule, which shows that the company values shareholder returns and long-term business confidence.
The growth rate of the same store was disrupted by last year's high base, and Taier's turnover level is still high.
1) 2024Q1 operations basically continue the 2023Q4 trend. The average daily sales growth rate of the same store was under pressure due to factors such as a high turnover in the same period last year, changes in the menu structure and continuation of promotions since 2023H2, and customer unit price adjustments. The market already had certain expectations, and the pace of opening stores was steady (there were few releases in Q1 stores over the years, mainly due to inconvenient construction around the Spring Festival, and more stores will gradually open from Q2).
2) Judging from the absolute price index, Taiji still remains 3.9 times higher (excluding takeout); although hot pot has declined, customer orders are relatively stable. We expect the brand to focus on refining existing stores and encrypting stores that have already entered the market. Key business areas include Guangdong, Fujian, Shanghai, and East China to create high potential. The brand's internal adjustments will be made to reduce costs and increase efficiency, launch more combinations, and diversified marketing activities to expand the customer base. The brand operating profit margin is 12.2% in 2023, and it is expected that it will continue to increase in 2024, and the operating results are worth looking forward to. The volume and price of Jiumaojiu Restaurant have risen sharply since 2023, and 2024Q1 performance continues to be steady. In recent years, Yungui flavors such as sour soup have risen to prominence in the catering industry. The company has increased the layout of sour soup racetracks outside the mountains. Joining outside the mountains has great potential for expansion, and it is expected to become the third growth curve in the medium to long term.
Profit forecast and investment rating: We expect the operating pace to be high before and after the full year of 2024 (corresponding to the high and back of the 23-year base). We maintain the 2024-26 net profit forecast of 6.2/7.5/860 million yuan (2024-26 profit CAGR is 18%), and the latest closing price corresponds to a PE of 10/8/7x. The current valuation is at a historically low level. The company will place more emphasis on shareholder returns in the future to maintain a “buy” rating.
Risk warning: industry competition intensifies; consumption recovery falls short of expectations; expansion falls short of expectations; brand iteration, food safety risks.