Incident: Babi Foods released its 2024 quarterly report. In 1Q24, the company achieved revenue of 354 million yuan, a year-on-year increase of 10.7%, and realized net profit of 40 million yuan, a year-on-year decrease of 3.4%, after deducting net profit from non-return to mother of 38 million yuan, an increase of 87.1% over the previous year. The performance was in line with market expectations.
Revenue grew steadily, with impressive group meal performance: 1) By category, 1Q24's core category of noodles/fillings/outsourced food achieved revenue of 1.5/0.9/0.8 billion yuan, with a year-on-year growth rate of 9%/17%/9%, and the increase in fillings revenue was prominent; 2) By channel, 1Q24 franchising/direct-management/group meals achieved revenue of 2.6/0.1/80 billion yuan, a year-on-year change of +8%/+21%. With the gradual restoration of downstream customer demand, the group meal revenue growth rate was impressive, and the company will continue to further cultivate the convenient catering chain. Franchising and new retail Platform channels promote the sustainable and steady growth of the group meal business; 3) Looking at the subregion, the East China/South China/North China/Central China region achieved revenue of 2.9/0.3/0.1/0.2 billion yuan in 1Q24, an increase of 8%/38%/24%/15% over the previous year. All regions maintained excellent growth momentum. The company's investment in Nanjing was expected to be combined in the future to enhance the scale effect of the supply chain.
There is still pressure to open stores in East China. Looking at the regional level, the number of stores in East China/South China/Central China/North China was 3348/780/803/163 in 1Q24, with a net change of +3/+53/+0/ -5 at the end of 2023. The number of stores increased 10.7% year-on-year. The South China market is expanding faster. The newly expanded Hunan market may be a major contributor. The expansion of stores in the East China region is under some pressure. Under the current consumption environment, franchisees are less willing to open stores. Dinner business penetration rate, strengthen operational capacity, Improving single-store revenue levels is a major priority this year. The year-on-year growth rate of the company's number of stores in 1Q24 is higher than the year-on-year growth rate of franchise business revenue. It can be inferred that single-store revenue is still declining to a certain extent, but the magnitude is manageable, mainly due to rapid store opening strategies. As the proportion of lunch and dinner and takeout continues to increase, the company's single-store revenue is expected to enter an upward channel.
The gross margin and rate were further optimized, and the net margin of the main business improved markedly: in 1Q24, the company's gross margin was 25.92%, up 1.72 pcts year-on-year, mainly due to a decrease in raw material costs, and the depreciation impact of the newly put into operation at the Nanjing factory is relatively manageable. In 2023, the company's sales expense rate/management expense ratio decreased by 2.27/2.03 pct year-on-year to 5.01%/7.62%, and the rate improvement was significant. However, due to the company's fair value changes and profits during the same period last year, the company's net interest rate to mother fell 1.12 pcts year on year. If this factor is excluded, the company's net interest rate to mother increased by 5.33 pcts year on year.
Profit forecast, valuation and rating: In the current consumer environment, continuing to improve single store revenue and open up new regions is expected to maintain steady growth in the company's revenue/net profit, and the growth rate of group meal revenue is expected to continue to provide an increase in the company's performance. We maintain the 2024-26 net profit forecast of 2.39/2.73 billion yuan. The current stock price corresponds to PE of 17/15/12 times, maintaining a “buy” rating.
Risk warning: Downstream demand is weak, cost increases exceed expectations, and store expansion falls short of expectations.