Introduction to this report:

The 24Q1 franchise maintains a good pace of opening stores. The foreign port market continues to expand, single-store sales and store closures are expected to gradually improve, the group meal business continues to develop, and the non-profit margin deducted is showing an improving trend.

Key points of investment:

Investment advice: Maintain an “Overweight” rating. Considering that the company may need to gradually climb the decline to increase market investment and production capacity, the 2024-26 EPS forecast was lowered to 0.97 (-0.07), 1.13 (-0.08), and 1.28 (-0.11) yuan. Refer to the comparable company's 24-year 22 XPE, and the target price was lowered to 21.6 yuan.

The performance was in line with expectations. 24Q1 achieved revenue of 354 million yuan, +10.74% year over year, net profit attributable to mother of 40 million yuan, -3.43% year over year; deducted non-net profit of 38 million yuan, +87.07% year over year. Revenue and deduction of non-profit were in line with expectations. The net profit and loss attributable to mother was mainly due to a year-on-year decrease of 23.98 million yuan in fair value change profit and loss due to indirect ownership of Dongpeng Beverage shares.

The trend of group meals continues to pick up, and single-store revenue still needs to be improved. The company's 24Q1 franchise/direct-operation/group meal revenue was 2.6/0.06/083 million yuan respectively, +8.3%/-8.0%/+20.9% year-on-year. There were 203 new stores opened, 152 stores closed, and 51 net stores. The average revenue of franchise stores was -2.1%. It is expected that foreign port stores such as Central China and South China have declined due to the rapid expansion of new stores and single store sales yet to resume; the group meal business continues to pick up with chain customers and the development of new products. 24Q1 gross profit margin and net profit margin were +1.7/+4.3pct to 25.9%/10.7%, respectively. It is expected that the cost side will improve, profit will be boosted on a low base, and sales/management/R&D/finance rates are -2.3/-1.5/+0.0/+0.5pct year on year, respectively, showing an improvement in cost efficiency.

Expanding stores in new regions can be expected due to the combination of endogenous and external extensions. In 24Q1, there was a net increase of 3/53/26/5 stores in East China/South China/Central China/North China respectively, with revenue of +7.9%/38.4%/15.4%/24.5%, respectively. The South China and Central China regions accelerated store expansion and revenue growth with the opening of more provinces and regions and mergers and acquisitions. In the future, it is expected that single-store sales will gradually improve by increasing takeout and restructuring.

Risk warning: macroeconomic fluctuations, increased market competition, rising raw material costs.