On April 29, 2024, Huangshanghuang released the results report for the first quarter of 2023.

Key points of investment

Reduced costs raised the level of gross margin, and rates increased year-on-year

The company's revenue for the first quarter of 2024 reached 458 million yuan (same decrease of 10.56%), and net profit attributable to mother was 0.3 million yuan (same decrease of 10.08%). The gross margin for the first quarter of 2024 was 35.60% (same increase of 6.5 pcts), and the net margin for the first quarter of 2024 was 6.95% (same increase of 0.4 pcts). The sales rate for the first quarter of 2024 was 14.19% (+2.37pcts), and the management rate was 9.13% (+1.75pcts). Net cash flow from operating activities was $98 million in the first quarter of 2024 (down 20.4% from the same period).

The strategy of ten thousand stores is progressing steadily, and the number of stores is growing steadily

The company's strategy of thousands of stores is progressing steadily. By the end of 2023, the number of the company's stores reached 4,497, including 262 direct-run stores and 4235 franchise stores, a net increase of 572 compared to the end of 2022. We judge that the closing rate will gradually return to normal levels from 2024, and that the internal and external markets of the province are vast and there is still plenty of room for store expansion, so the number of stores is expected to grow steadily in the future.

Profit forecasting

In the short term, the company's same-store revenue situation is slightly pressured by the external consumption environment, but from a medium-term perspective, we are optimistic that the company's operations will return to the right track starting in 2024. The stores have shown a rapid expansion trend, and concentration will continue to increase. We expect EPS to be 0.25/0.33/0.40 yuan respectively in 2024-2026, and the current stock price corresponding to PE is 32/25/21 times, respectively, maintaining a “buy” investment rating.

Risk warning

Downward macroeconomic risks, the pandemic is dragging down consumption, costs falling short of expectations, and the pace of opening stores falls short of expectations, etc.