In 2023, the company effectively met the demand for reimbursement, and revenue and net profit to mother ushered in a beautiful rebound. In 2023, the company achieved revenue of 2.40 billion yuan/ +43.8%, up 64.2% from 2019; return to mother and net profit of 30/250 million yuan respectively, up 224.9%/240.0% year-on-year respectively, and 53.9%/41.7% over the same period in 2019, respectively, at the median performance forecast. Among them, non-recurring profit and loss mainly contributed to compensation payments for store demolition. Single Q4 achieved revenue of 720 million yuan, up 69.7% year on year, up 78.3% from 2019 Q4; return to mother and net profit of 100.90 million yuan respectively, up 1648%/3576% year on year, and an increase of about 63% over 2019 Q4. Overall, at the end of 2023, the operating area of the company's stores increased by about 117% compared to 2019. The expansion of production capacity was effective to meet post-epidemic recovery needs, and the performance rebounded significantly. In 2023, the company plans to pay a cash dividend of 0.41 yuan (tax included) per share, and the total shareholder return after recovering the repurchase amount for the year is 44.7%.

Business spin-off: Fumao's business revenue was released well, and the food business expanded rapidly. Of the company's main business revenue in 2023, revenue from traditional catering business/ Fumao business/ food business increased 26%/141%/78% year-on-year respectively, with the three types of businesses accounting for 71%/21%/8% respectively. At the end of 2023, the company operated a total of 4 Fumao hotels and achieved annual revenue of 450 million yuan. Since opening the first one in October 2020, it has gradually become the core component of the subsequent opening area. The revenue from the food business reached 170 million yuan in 2023, growing rapidly since the launch of business in August 2021. At the end of the year, Tongqinglou Fresh Meat Dabao Store opened 80 stores. By joining the East China market, it quickly replicated, expanding the food business while expanding the brand's popularity abroad.

Old stores operated smoothly in the first quarter of 2024, and new stores contributed to revenue growth. Q1 The company achieved revenue of 690 million yuan, an increase of 28.0% year on year; among them, the revenue of old stores (stock stores before March last year) increased 6.2% year on year, and the performance was stable, and the new store contributed an increase of 86.09 million yuan. Q1 net profit attributable to mother was 65.9 million yuan, down 8.8% year on year. There was an impact of non-recurring profit and loss in the same period last year (levy compensation and 2023 VAT plus deduction policy income, etc.); Q1 net profit after deducting non-return to mother was 64.5 million yuan, up 5.3% year on year; among them, the profit estimates of old stores increased by about 9.8% year on year, and new stores lost 365 billion yuan. The three new stores in Q1 are expected to be the main drag.

In 2024, the expansion bucked the trend and accelerated, demonstrating management's confidence in the company's operating competitiveness. In 2024, the company accelerated its development and further expanded to Shanghai, Hangzhou and other places on the basis of Anhui and Jiangsu. The annual plan is to add 265,000 square meters of store area, which is more than double the actual store area opened in 2023. It is estimated that the Fumao model store area accounts for 7-80%. In the current market environment where demand for banquets and business dinners is relatively stable, the company is actively entering an accelerated investment cycle, which reflects the management's confidence in the efficiency and competitiveness of the store's operations. The phased launch of new stores or disrupts short-term profits, and the test of the ability to operate offsite is not low; however, if the store successfully climbs the slope and verification, the profit scale is also impressive, and the leading position in the segment is further consolidated.

Risk warning: New store expansion falls short of expectations; offsite verification falls short of expectations; food expansion falls short of expectations.

Investment advice: Considering that current demand for banquets and business banquets has gradually returned to normalization and stable performance compared to last year, and combined with short-term rapid new store profit drag, we lowered the company's net profit to mother for 2024-2025 to 3.38/430 million yuan (previously, it was 378/491 million yuan in 24-25) and added the 2026 forecast to 537 million yuan, corresponding to EPS of 2024-2026 of 1.30/1.65/2.07 yuan, dynamic PE 21/17/13x. The company is a leader in the banquet and catering segment. It has excellent operating efficiency. The current investment cycle may disrupt profit release, but it is expected to help consolidate competitive share and grow mid-tier profits, follow up on the business trends and capital expenditure rhythm of old stores, and maintain a “buy” rating for the time being.