Matters:
The company released its 2023 annual report. During the period, the company achieved revenue of 1,209 billion yuan, a year-on-year decrease of 22.49%, and net profit to mother of 181 million yuan, reversing the year-on-year loss. The adjusted net profit is 280 million yuan, and the adjusted net interest rate is 23.2%. The company plans to pay a final dividend of 0.3153 yuan/share, for a total of about 400 million yuan.
Commentary:
The year-on-year decline in revenue was mainly due to the company's strategic transformation to an asset-light model, actively adjusting its direct-run store network, and vigorously developing partner stores. The revenue structure was still dominated by its own products. In '23, the company's own products accounted for 71.1% (-5.4pct), of which beer accounted for 10.4% (-7.6pct), beverages accounted for 41.3% (+4.1pct), snacks accounted for 19.4% (-1.9pct), third-party branded beverages accounted for 18.7% (-1.3pct), franchised partnerships and stores Percentage of sales revenue 8.7% (+8pct) The gross margin of its own alcohol remained stable, and the gross margin of third party alcohol increased steadily. The gross margin of the company's own alcohol was 75.7% in '23, which is basically the same as the same period last year, and the gross margin of third party alcohol was 54.8% (+4.7pct).
Transform to platform+asset-light, adjust stock stores, and vigorously develop partner stores. As of the performance announcement date, a total of 383 partner stores have been signed, 188 have been opened, covering 136 cities, including 69 stock markets. In '23, 157 new pubs were opened and 445 were closed. By the end of '23, the number of direct-run stores had shrunk to 479 (767 in the same period last year), 38 in first-tier cities, 186 in second-tier cities, 252 in third-tier cities and below, and 3 outside mainland China. By type, there are 255 directly-managed pubs (-398), 92 licensed cooperative pubs (-22), and 132 Hi Beer Partner pubs (+132). As of March 19, '24, the company had 236 direct-run stores, 84 franchised partner stores, and 183 Hi Beer Partner stores.
The daily sales performance of directly-managed pubs in first-tier cities is better. There is not much difference between the different tier cities. First-tier cities sell 7,500 yuan per day, second-tier cities sell 7,100 yuan daily, and third-tier cities sell 7,400 yuan per day, with an average of 7,300 yuan.
Partner stores performed better in single-store daily sales, with 9,400 yuan in first-tier cities, 7,700 yuan in second-tier cities, and 6,900 yuan in third-tier cities. Partner stores use a new store model, with less upfront investment, smaller area and higher floor efficiency. In '23, the average daily floor efficiency of directly-managed pubs was 19 yuan/square meter, franchised partner taverns were 20 yuan/square meter, and Hi Beer partner stores were 34 yuan/square meter. (The annual floor rate for the three types of stores is 6,935 yuan/7,300 yuan/12410 yuan).
Various costs and expenses have been reduced to varying degrees. Costs are properly controlled. Raw material costs account for 29.8% (-6.3pct), labor costs account for 24.7% (-7.4% year-on-year after deducting stock payments in '22), and the rent plus discount rate is 16.5% (-16.5pct).
Profit forecasting, valuation and investment ratings: The company began strategic adjustments in 23, shifting to platform-based company operations and actively exploring various business models. Compared with previous direct-run pubs, Hi Beer Partner stores have a lighter asset model, smaller area, less upfront investment, and more diversified store opening scenarios. Considering that the company's directly-managed pubs are still closing and shrinking, due to prudential considerations, we adjusted the 24-25 EPS forecast to 0.16 yuan and 0.23 yuan (previous value was 0.55 yuan, 0.68 yuan), adding 0.33 yuan for 2026 to correspond to the current stock price PE was 16 times, 11 times, and 8 times, respectively. Referring to comparable companies in the Hong Kong stock industry, 20 times PE was given in 24 years, and the corresponding target price was HK$3.41 (current exchange rate), maintaining the “recommended” rating.
Risk warning: upward pressure on raw material prices; store expansion falls short of expectations; partner expansion falls short of expectations; new product promotion falls short of expectations.