Zhitong Finance and Economics APP learned that GTJA released a research report stating that it started covering U-Presid China (00220) for the first time, giving a "shareholding" rating, and expected the company's EPS to be RMB 0.42/0.46/0.49 in 2024/25/26. The company's post-epidemic revenue returned to the growth track, and the beverage business is the core growth point, with an improving trend in profit margin. The company has implemented a 100% dividend or excess dividend since 2018. At present, the stock price corresponds to a dividend yield of 8%.

GTJA's main opinions include:

Revenue has returned to a growth track after the epidemic, with first-class returns to long-term shareholders.

The company began its operations in 1992, and achieved a total revenue breakthrough of 20 billion yuan in 2012. After seven years of stagnant revenue scale, it returned to a growth track after the epidemic and achieved a revenue of 28.59 billion yuan and a profit scale of 1.667 billion yuan in 2023. Main business income mainly comes from the beverage business and instant noodle business, accounting for about 60% and 40% respectively. The ROE has continued to increase over the past ten years, reaching a new high of 12.5% in 2023. Since 2018, the company's dividend rate has remained in the range of 100%-120%, and the dividend yield has increased from 5% to 8%, with first-class long-term shareholder returns.

Advantages in product innovation and organizational effectiveness have significantly improved the efficiency of labor.

As a leading company in the instant noodle and beverage industry, the company is committed to product innovation. For example, the large single product Assam milk tea and ice black tea in the beverage segment are expected to have broken 7 billion yuan and 3.5 billion yuan respectively, and in the instant noodle segment, it has successively launched several major single products such as Lao Tan pickled cabbage and Tangdaren eggplant. The company still continues to upgrade its products. The company adheres to improving operational efficiency, optimizing organization, implementing freshness management for products, and adopting a modern management team and internal promotion system. Since the company's listing, the per capita revenue has tripled to 0.85 million yuan, and the per capita profit has increased five-fold to 0.05 million yuan.

The beverage business is the core growth point, with profit margin showing an improving trend.

The bank believes that the beverage business will become the company's core growth point in the future, and expects its CAGR (2024-26E) to be around 7%. The core drivers are: 1) the trend of increasing short-distance travel drives the expansion of the beverage market; 2) the establishment of six major types of sales outlets, diversified channels, improved penetration rate and single outlet income; 3) product innovation, category extension. On the other hand, in the 10 years from 2013 to 2023, gross profit margin experienced two highs, up to 36-37%, and lows as low as 29%. The bank expects that under the drive of a new round of raw material cost cycle and economic cycle, gross profit margin is expected to show a gradual trend of repair. At the same time, the historically formed operational efficiency and competition pattern will continue, and the operating expense rate may remain low. This means that in the process of gross profit margin repair, the improvement amplitude and elasticity of net profit margin will be more significant than in previous years.

Risks: Fluctuations in raw material prices and intensifying competition.