The company's revenue growth in 2023 was steady, +17.1% year-on-year to 2.74 billion yuan. The net increase of 387 stores in 23 reached 3,816, and the advantages of transportation hub stores were strengthened. The store opened in '24, putting quality first, paying more attention to single-store efficiency, and piloting the 2-in-1 store model. Prices of duck and side raw materials on the cost side have gradually declined since 23H2. While making strategic reserves for raw materials, the company is improving supply chain efficiency. It is expected that the company's cost pressure will drop in 24 years, and profitability is expected to pick up. We expect the company's net profit for 24-25 to be 210 million/230 million. The current valuation corresponds to 18 times/17 times PE in 24/25, maintaining an “gain” rating.
Incident: The company disclosed the 2023 results announcement. In 2023, the company achieved revenue of 2.74 billion yuan, +17.1% year over year; realized net profit of 120 million yuan, +357.1% year over year. Among them, 23H2 achieved revenue of 1.33 billion yuan, +14.3% year-on-year; realized net profit of 0.1 billion yuan, +100.6% year-on-year.
The advantages of transportation hub stores have been strengthened, and the recovery of self-operated businesses is better than franchised businesses. By channel, (1) Self-operated:
Net increase of 274 stores to 1,720, achieving revenue of 1.47 billion, +26.9% year-on-year; (2) Franchising:
The net increase in stores was 113 to 2,096, achieving revenue of 780 million, +13.0%; (3) Online channels: achieved revenue of 40 million, -5.1% YoY; (4) Other revenue of 98.665 million, +26.9% YoY.
The total number of the company's stores increased from 3,429 in 2022 to a net of 387 to 3,816. Looking at individual stores, the average single-store average of direct-run stores/franchised stores in '23 was +8%/-3%, respectively. The restoration of single-store own-operated stores was affected by the recovery of passenger traffic in transportation hubs. By store type, there was a net increase of 141 to 319 transportation hub stores; a net increase of 157 to 2256 commercial supermarkets in the business district; a net increase of 53 to 845 community stores; and a net increase of 36 to 396 other stores. Looking at the subregions, Central China/South China/East China/North China/North China/West China had revenue of 12.1/3.9/2.6/2.2/170 million respectively, +24.7%/+13.1%/+23.1%/+19.7%/+22.4%, respectively.
In terms of stores, the number of stores in Central China, South China, East China, and West China was 1685/667/561/430 respectively, a net increase of 132/83/107/92, respectively, and a net decrease of 17 to 473 stores in North China.
Driven by raw material prices, gross margin declined year-on-year but the H2 decline narrowed. Affected by the high price of 23H1 duck ingredients and the actual use of raw materials one quarter later than the procurement pace, costs increased year-on-year. In '23, the company achieved a gross profit margin of 52.4%, a year-on-year decrease of 2.6 pcts, of which 23H2 fell 0.8 pct to 52.3% year on year.
In '23, the sales expense ratio decreased by 3.9 pct year on year, the management expense ratio decreased by 1.7 pct year on year, and the final net interest rate increased by 3.1 pct to 4.2%.
24-year outlook: Focus on improving the quality of single stores and promoting chilled hot and halide 2-in-1 stores. In terms of stores, the company will strengthen the advantages of transportation hub stores, improve the quality of operations, and enhance the efficiency of single-store stores. Non-transportation hub companies carry out marketing activities around the theme of building Guochao Braised Food, creating a new model of chilled fresh and hot halide, entering a high-traffic market, breaking the consumption threshold, promoting the replication of new 2-in-1 stores, and serving franchisees well at the same time. In terms of production capacity, the Chengdu plant was put into operation one after another this year to provide capacity support for future increases.
Investment advice: Put steady management first, improve the efficiency of existing stores, and maintain a “gain” rating. In '23, there was a steady net increase of 387 stores to 3,816. When opening in '24, quality was put first, more emphasis was placed on single-store efficiency, and the 2-in-1 store model was further promoted on a pilot basis. The price of the upstream raw material duck and side has gradually declined since 23H2. While making strategic reserves for raw materials, the company is improving supply chain efficiency. It is expected that the company's cost pressure will drop in 24 years, and profitability is expected to pick up. We expect the company's net profit for 24-25 to be 210 million/230 million. The current valuation is 18 times/17 times PE in 24/25, respectively, maintaining an “increase” rating.
Risk warning: Store expansion falls short of expectations, rising raw material costs, increased industry competition, food safety risks, etc.