Revenue for the first quarter of 2024 increased 10.7% year over year. In 2023, the company achieved revenue of 1,630 billion yuan, a year-on-year increase of 6.89%, net profit to mother of 214 million yuan, a year-on-year decrease of 4.04%, and net profit after deducting non-return to mother of 178 million yuan, a year-on-year decrease of 3.80%. In the first quarter of 2024, the company achieved 354 million yuan, a year-on-year increase of 10.74%, a year-on-year net profit of 396 million yuan, a year-on-year decrease of 3.43%, and net profit after deducting non-return to mother of 377 million yuan, an increase of 87.07% over the previous year.
Nationalized stores have been steadily expanding, and the share of the group meal business has increased. In 2023, the company achieved revenue of 1,630 billion yuan, with a net increase of 572 stores to 5061. By industry, noodles/fillings/outsourced foods/packaging additives/franchisee management achieved revenue of 6.62/4.14/3.94/1.02/0.56 billion yuan, compared with 0.6%/18.4%/4.0%/9.6%/28.1%; by region, East China/South China/Central China/North China achieved revenue of 13.54/1.20/0.97/0.54 billion yuan respectively, up 2.41%/29.83%/60.47%/21.75%. Among them, revenue in central China grew rapidly, with stores growing rapidly; by sales model, the company's share of group meal business increased rapidly, from 13.67% in 2020 to 20.24% in 2023.
Expense rates declined in the first quarter of 2024, and net profit margins after deducting significant improvements. The company's gross margin increased by 1.72 pct year-on-year to 25.92% in the first quarter of 2024, mainly due to a drop in raw material prices. The company's sales expense rate/ management expense rate/ R&D expense ratio for the first quarter of 2024 were 5.01%/7.62%/0.90%, respectively, and -2.27/ -2.02/+0.04pct, respectively, resulting in a 4.35pct year-on-year increase of 4.35pct to 10.66% year-on-year. In addition, in the first quarter of 2024, the company generated non-recurring profit and loss of 1.92 million yuan, compared to 20.88 million yuan in the same period last year, mainly due to changes in the fair value of Dongpeng Beverage indirectly held by the company.
Investment advice: First coverage, giving a “neutral” rating. We expect the company to achieve total operating income of 18.4/20.5/2.28 billion yuan in 2024/25/26, an increase of 12.7%/11.8%/10.9%; in 2024/25/26, the company will achieve 2.4/2.7/30 billion yuan, an increase of 10.3%/14.4%/10.9%. Earnings per share will reach 0.94/1.08/1.20 yuan, respectively, and PE corresponding to the current stock price is 16.9/14.8/13.3 times, respectively. We believe that in the short term, downstream consumption power is expected to continue to recover in 2024. The impact of the previous downstream closure will gradually dissipate. The company's store expansion is progressing smoothly, and the superimposed group meal business is being actively developed. It is expected that the company will usher in a better recovery in 2024. In the medium to long term, the breakfast market space is vast. The company has outstanding product strength as a leading Chinese breakfast store. The store has a national layout, and the share of the group meal business is expected to increase at an accelerated pace due to channel activity. For the company's 2024 PE18-20x, the reasonable price range is 16.96-18.84 yuan, and the corresponding market capitalization range is 42-4.7 billion yuan, which has 7-18% premium space over the current stock price.
Risk warning: Group meal penetration falls short of expectations; store expansion falls short of expectations; raw material prices rise.