Incident: The company released its 2024 quarterly report. It achieved operating income of 354 million yuan in a single quarter, +10.74% year on year, realized net profit of 40 million yuan in a single quarter, -3.43% year on year, and net profit after deducting non-return to mother of 38 million yuan, +87.07% year on year. The company's performance has been improving steadily, and deductions have increased significantly over the same period last year.
Channel side: The company's 2024Q1 franchise sales/direct store sales/group meal sales revenue for the single quarter was 2.58/0.06/083 million yuan respectively, +8.31%/-7.97%/+20.87%. The group meal business continued to pick up. Among them, the increase in franchise sales mainly benefited from the new market in the Hunan region opened by the company in June 2023. Store side: As of 2024Q1, the total number of participating stores was 5094, a net increase of 51, of which 203 new stores were opened and 152 were closed. 2024Q1 showed a net increase of 3/53/0/ -5 stores in East China, South China, Central China, and North China respectively in a single quarter. In South China, due to the company's opening of a new market in the Hunan region in June 2023, the growth rate of stores in the South China region is expected to continue to increase; the growth rate of stores in the central China region is 0, mainly because the company has mergers and acquisitions to expand brands such as “Goodbye” and “Early Access” brand stores. Many such stores closed this quarter, offsetting the growth of Babi brand stores. There was a net increase of 26 stores compared to franchise stores in the region (48 stores opened and 22 closed stores). In terms of revenue by region, the revenue of 2024Q1 in East China/South China/Central China/North China in a single quarter was 2.91/0.30/0.20/013 billion yuan respectively, up 7.92%/38.41%/15.35%/24.48% year-on-year respectively. After the start of the expansion period, business in the South China region developed rapidly, and performance is expected to be released at an accelerated pace in 2024. The average revenue of the company's franchised stores in the first quarter of 2024 was 69,500 yuan, +0.06% year-on-year. The company's refined management promoted steady business development.
Product side: The company's 2024Q1 food/packaging and accessory/service fee/other revenue was RMB 3.17/0.23/0.14/0.01 billion yuan respectively, or +11.08%/+3.68%/+15.93%/+0.15%, respectively; each business accounted for 89.53%/6.39%/3.92%/0.15%, respectively. Among food revenue, revenue from noodles, rice, fillings, and outsourced food was 1.48/0.90/79 million yuan respectively, +8.65%/+17.31%/+9.09%, respectively. The development of various businesses was relatively steady.
Expense side: The company's overall gross margin for the first quarter of 2024 was 25.92%, up 1.72 pct from the same period last year; net profit margin to mother was 11.20%, down 1.64 pct from the same period last year; net profit margin after deduction was 10.66%, an increase of 4.35 pct over the same period last year. The company's 2024Q1 sales expense rate/management expense rate/R&D expense ratio were 5.01%/7.62%/0.90%, respectively, -2.27/ -2.02/+0.04pct year-on-year, respectively. Sales expenses and management expenses for this quarter were significantly reduced compared to the same period last year, leading to a significant year-on-year increase in net profit deducted from non-return to mother during the quarter. The company's non-recurring profit and loss for the quarter was 1,919,800 yuan, or -90.8% (23Q1 non-recurring profit and loss of 208.765 million yuan), mainly due to fluctuations in the secondary market for the company's holding of Dongpeng Beverage shares.
Profit forecasting and investment advice
As for the franchise business, affected by returning home during the Spring Festival, the first quarter was a traditional off-season for franchising, and the company's performance in the first quarter was more in line with expectations. Meanwhile, in the second quarter of 2024, the company will co-operate with the “Steamed Full Flavor” brand, which acquired 51% of the shares in the previous period, and continue to implement the company's growth strategy of going hand in hand with endogenous growth. Based on the results for the first quarter of 2024, we maintain the company's 24-26 profit forecast. The company's net profit for 24-26 is estimated to be 2.43/2.91/333 million yuan, respectively, corresponding to the current stock price PE of 17/14/12 times, respectively. Considering that the company has a strong market position in the market segment, it was reasonably given 25 times PE in 24 years, corresponding to a target price of 2,426 billion yuan, to maintain the purchase rating.
Risk warning
Risks of falling short of expectations in opening a store, drastic changes in raw material costs, increased industry competition, food safety risks