Key points of investment:
Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved 3.55 billion yuan, a year-on-year decrease of 1.46%; achieved net profit of 332 million yuan, an increase of 49.46% over the previous year. It is estimated that 23Q4 achieved revenue of 734 million yuan, a year-on-year decrease of 14.65%; net profit loss to mother was 9.917 million, and a loss of 5.765 million in the same period last year. The dividend plan is to pay 8 yuan in cash (tax included) for every 10 shares, with a dividend rate of 99.41%. In the first quarter of '24, the company achieved revenue of 695 million yuan, a year-on-year decrease of 8%; realized net profit of 54 million yuan, an increase of 20.9% over the previous year. The performance was in line with market expectations.
Investment rating and valuation: Based on cautious assumptions about the recovery of downstream consumption scenarios, we expect the number of stores to be 6805 or 7405 in 24-25 (7295 or 8095 before 24-25), lower the 24-25 forecast, and add a 26-year forecast. The net profit for 24-26 is 375 million, 420 million, and 468 million (502 million yuan and 5.80 million yuan in 24-25 years), respectively, up 13%, 12%, and 11% year-on-year, corresponding to EPS, respectively It was 0.91, 1.02, and 1.14 yuan (1.22 and 1.41 yuan in 24-25 years ago). The latest closing price was 21, 18, and 17x for 24-26 PE, respectively. We gave the 24-year comparable company an average valuation of 23xPE. There is still 11% room compared to the current stock price, maintaining an increase rating. We are optimistic that the company will accelerate store expansion through a two-level sales network. Market share is expected to increase rapidly. In the future, profitability will gradually increase through scale effects, and achieve both revenue and profit increases.
Average store revenue declined year over year, putting pressure on revenue performance. By product in '23, fresh goods products/pre-packaging and other products/packaging/franchise fees achieved revenue of 3.0 billion/ 340 million/90 million/60 million, respectively, -1.7%/-5.7%/3.3%/14.0% year-on-year, respectively. Looking at the split of stores, by the end of 2023, the company had a total of 6,205 stores, a net increase of 510 compared to the end of last year, and a net increase of 68 compared to the end of June 23. The pace of opening stores slowed down in the second half of the year. Average store revenue fell 10.3% year on year, dragging down the performance of fresh goods products. By region, East China, Central China, Southwest China, North China, South China, Northwest China, Northeast China, and other regions achieved revenue of 2.45 billion, 390 million, 160 million, 90 million, 50 million, 0.3 billion, 0.2 billion, compared with -5.4%/+0.9%/+9.5%/+8%/+8.2%/+28.9%/+41.5%/+56.1%, respectively. The East China base market performance is under pressure. 24Q1 revenue fell 8% year on year, with fresh goods products falling 11% year over year. We expect it to be mainly a drag on same-store performance, but the gap has narrowed somewhat compared to 23Q4.
Cost improvements unleash profit elasticity. According to the company's announcement, in 2023, the company achieved a gross profit margin of 22.5%, an increase of 6.5 pct over the previous year. Prices of mainly raw materials such as beef and chicken continued to decline. In 2023, the company's sales/management expenses rate was 6.1%/4.8%, respectively, +2.3 pct/+0.2 pct. The R&D and financial cost ratio is basically stable, and the increase in sales expenses is mainly due to an increase in advertising expenses. Benefiting from the increase in gross margin, a net profit margin of 9.6% was achieved in 2023, an increase of 3.6 pct over the previous year.
24Q1 achieved a gross profit margin of 20.9%, an increase of 2.2 pct over the previous year. The 24Q1 sales/management expenses ratio of the company was 5.2%/6.4%, respectively, +0.7pct/-0.1pct year-on-year, respectively. Benefiting from cost improvements, the 24Q1 company's net margin increased 1.9 pct to 7.7% year over year.
The catalyst for stock price performance: dealer expansion exceeded expectations, number of new stores exceeded expectations, and single store revenue growth exceeded expectations
Core hypothetical risks: fluctuating raw material costs, food safety incidents