"Internal competition" intensifies as the main theme of the catering industry in the first half of 2024. In the face of negative consumer market performance, catering businesses are generally in a competition for price reduction and quantity increase. Prices are falling, profits are falling, and the catering industry is facing a crisis of closing stores. Data shows that in the first half of 2024, 1.05 million catering stores were lost, more than twice the number of last year, and the annual bankruptcy rate exceeded 50%.

Under such circumstances, even the "veterans" in the catering industry are in crisis.

Recently, Jiu Mao Jiu (09922) released a warning of profit decline, expecting the group to achieve a revenue of about 3.064 billion yuan (RMB, the same below) in the six months ending June 30, 2024, an increase of about 6.4% compared to the same period in 2023. However, during this period, the net profit attributable to equity shareholders of the company is expected to be no less than 67 million yuan, a decrease of no more than 69.8% compared to the same period in 2023. Under the warning, the company's stock price plummeted. On July 22, the company's stock price fell more than 12% to a low level of HKD 2.98. On July 23, the company's stock price fell again, falling to HKD 2.91 at one point, a new low since listing for four years. As of the close, Jiu Mao Jiu finally reported HKD 2.92, down 4.58% for the day. In fact, looking back over time, since January 2023, the company's stock price has been like a slide, falling all the way from the year's new high of HKD 23.79. In a short year and a half, the company's market value has evaporated nearly 90%.

Under the warning of profit decline, the company's stock price has fallen sharply. On July 22, the company's stock price fell more than 12% to a low level of HKD 2.98. On July 23, the company's stock price fell again, falling to HKD 2.91 at one point, a new low since listing for four years. As of the close, Jiu Mao Jiu finally reported HKD 2.92, down 4.58% for the day.

What will happen next to the former leader of the hot pot with sour fish, jiumaojiu's stock price falls again?

According to the warning announcement, Jiu Mao Jiu's net profit for the intermediate period has dropped significantly, mainly due to the following factors: first, due to the industry's rebound and government subsidies this time last year, the company's comparable base is relatively high; second, the average consumption and turnover rate of the company's restaurants both declined in this period, resulting in a decline in the single-store revenue of restaurants; third, the company's cost control measures lagged behind the decline in single-store revenue from restaurants due to open and operating costs, resulting in negative operating leverage, in addition to a loss of about 40 million yuan in asset impairment.

Compared to the significant growth in performance in 2023, Jiu Mao Jiu's latest warning of profit decline can be said to have once again "chilled the hearts" of investors.

For a long time, Jiu Mao Jiu's performance has been quite impressive. Since 2017, the company's revenue has continued to climb. Among them, revenue increased from 1.469 billion yuan in 2017 to 4.18 billion yuan in 2021, with a compound annual growth rate of 29.88%. At the same time, the company's net profit attributable to its parent has steadily increased from 66.861 million yuan in 2017 to 0.34 billion yuan in 2021. However, under the influence of the epidemic, Jiu Mao Jiu's performance in 2022 showed fatigue, and its net revenue and net profit fell across the board, with the company's net profit scale returning to the level of 2016. In 2023, with the recovery of the catering industry and an active expansion strategy, Jiu Mao Jiu's net revenue and net profit reached new highs again, once again presenting investors with a beautiful answer sheet.

Since 2024, the company's expansion strategy has remained active. In February of this year, the company bid farewell to the "all direct sales" model and announced the opening of franchise business for its two major brands, Tai'er and Shanwaimian sour soup hot pot. As of June 30, 2024, Jiu Mao Jiu had operated 771 restaurants, a net increase of 45 over the end of 2023. Among them, Tai'er sour cabbage fish restaurant has 614, Sōng hot pot has 73, Jiu Mao Jiu has 72, Lai Meili grilled fish has 4, Shǎngxiǎn Yuèmù has 1, and Shān de Shānwàimian has 7.

However, it is important to note that the continuously increasing number of stores has not been able to make Jiu Mao Jiu avoid the heavy blows of a declining turnover rate and a declining average consumption. Smart Finance App noticed that since 2024, the turnover rates of Jiu Mao Jiu's main brands have recorded continuous declines for two quarters in a row. In the first quarter of this year, the turnover rates of Tai'er, Sōng Hot Pot, and Jiu Mao Jiu's three major brands were 3.9, 3.0, and 3.0, respectively; in the second quarter of this year, they further declined to 3.6, 2.8, and 2.6. In 2023, the turnover rates of these three major brands reached 4.1, 3.8, and 2.9, respectively.

However, it should be noted that the continuously increasing number of stores has not allowed Jiumaojiu to avoid the heavy blows of table turnover rate and per capita consumption decline.

At the same time, the average consumption of these three major brands' customers has also continued to decline. Among them, the per capita consumption of Song Hot Pot has fallen from 116 yuan in the first quarter of this year to 104 yuan in the second quarter of this year, down 10.34% month-on-month; Tai'er has fallen from 73 yuan to 69 yuan, down 5.48% month-on-month; and Jiu Mao Jiu has fallen from 57 yuan to 55 yuan, down 3.51% month-on-month.

Meanwhile, the per capita consumption of the three major brands mentioned above has also been continuously declining. Among them, the per capita consumption of Songhuoguo dropped from 116 yuan in the first quarter of this year to 104 yuan in the second quarter of this year, a decrease of 10.34% compared to the previous quarter; Taier dropped from 73 yuan to 69 yuan, a decrease of 5.48% compared to the previous quarter; Jiumaojiu dropped from 57 yuan to 55 yuan, a decrease of 3.51% compared to the previous quarter.

The company explained that the average customer consumption of Tai'er and Slightly Hot Pot decreased in the second quarter of this year, mainly due to the company's continuous adjustment of menu structure and food prices to adjust the brand development strategy during the period, while increasing promotion activities. In addition, the proportion of Tai'er restaurants located in lower-tier cities also led to a decrease in per capita consumption of Tai'er's customers in mainland China.

Affected by this, the average daily same-store sales of the company's main brand fell. In the second quarter of this year, the same-store daily sales of Tai'er, Slightly Hot Pot, and Jiumaojiu decreased by 18.1%, 36.6%, and 12.6% respectively compared with the same period last year.

Where is Jiumaojiu's next growth curve under the internal turmoil of the hot pot industry?

Under this background, many major banks downgraded the target price of Jiumaojiu, and its development prospects were questioned.

Jefferies Financial pointed out that the company needs to promote more cost-effective products to attract consumers facing exhausted consumer sentiment and increasing competition pressures. It stated that the growth of sales in the first half of 2024 mainly benefited from the expansion of Tai'er and Slightly Hot Pot stores, but was offset by the continuous same-store sales pressure in the first two quarters due to weak consumer sentiment and increasing competition. It is expected that future profits will face more pressure. It also mentioned that due to the weak macroeconomic environment, there will be a risk of slowing down store expansion in the future. The bank significantly lowered the target price of Jiumaojiu from HKD 8 to HKD 4.1, and downgraded its rating from "buy" to "hold".

Goldman Sachs lowered its profit forecast for Jiumaojiu for the fiscal year 2024 to 2026 by 37% to 55%, reflecting its lower-than-expected performance in the first half of this year. It pointed out that in the face of a challenging market, same-store sales growth may continue to be under pressure. However, with the management's efforts in promoting control, cost savings, and concentration of resources on major brands, the bank expects Jiumaojiu's gross profit to continue to improve in the second half of this year and next year. The bank lowered the target price of Jiumaojiu from HKD 6.2 to HKD 3.8, maintaining a "buy" rating.

In fact, cultivating new brands has always been a key word to promote Jiumaojiu's development. From the success of Tai'er, Jiumaojiu tasted the sweetness, and Slightly Hot Pot was once regarded as the "third growth curve" to promote Jiumaojiu's performance.

However, from the performance perspective, the operating condition of Slightly Hot Pot did not give Jiumaojiu an expected surprise. Judging from the same-store daily sales in the second quarter of this year, the performance of Slightly Hot Pot was the highest among the three major brands.

In fact, with the overlapping of the macroeconomic environment and industry competition, the price war has already burned into the "hot pot" track. The data from Red Censor shows that the mainstream price range of the hot pot track in 2023 is between 60 yuan and 90 yuan, accounting for 43.4%. The second is the price range below 60 yuan, accounting for 24.1%; the price range above 120 yuan accounts for less than 10%. Since this year, small hot pots with an average price of 30-40 yuan have become popular. For example, Banu launched the Tao-Niang-Xia Fan small hot pot. The six small hot pots it launched are all priced at less than 30 yuan, and the side dishes are priced at less than 10 yuan, mainly for single diners. Haidilao has also launched a fast food product targeted at single diners in the form of "rice and hot pot dishes", with a main price of around 20-30 yuan.

Under this background, Slightly Hot Pot had to reduce its prices, with the pot bottom price lowered to 8.8 yuan, the meat dishes lowered to 9.9 yuan, and the vegetarian dishes lowered to 6.6 yuan. Huafu Securities pointed out that the collective price reduction of the hot pot industry and the fierce price war stem from consumers paying more attention to the cost-effectiveness of catering consumption in recent years.

Although the performance of Slightly Hot Pot is not ideal, Jiumaojiu has not given up on this popular track. At the end of last year, it launched the high-end hot pot brand "Shangxian Yuemu" (Enjoying Fresh Mushrooms). And at the beginning of this year, it launched the Guiyang Sour Soup Hot Pot brand "Shan de Shan Waimian". However, in the hot pot industry, which has already been intense, it is more difficult for Jiumaojiu to break through with the continuous internal competition of the price war.

Under various crises, Jiumaojiu has stated that it will adopt a more cautious restaurant network expansion strategy, and adjust the target of opening 35-40 new stores of Slightly Hot Pot in 2024 to 25 stores. In addition, Tai'er restaurant will open 80-100 new self-operated restaurants in mainland China in 2024 and 15-20 new self-operated restaurants outside mainland China.

The company also stated that it will take four measures to improve operating performance: introducing new business models, such as franchising and cooperation models, and satellite stores for takeout; optimizing menu structure and food prices; optimizing employee motivation mechanisms to stimulate the subjective initiative of front-line operators; strengthening cost control measures to further improve operating efficiency.

In summary, with the weakness of main brand growth and the uncertain outlook of new brands, Jiumaojiu's stock price seems to be in a "frozen" state as expected. Under various crises, how can Jiumaojiu regain market confidence? Let us continue to pay attention.