occurrences

On July 31, the company announced its 24-year interim results forecast. It is expected that 1H24's revenue will not be less than 2 billion yuan, the year-on-year increase will not be less than 45%, the net loss due to mother will not be less than 10 million yuan, the year-on-year increase will not be less than 14%, the adjusted net profit will not be less than 48 million yuan, and the year-on-year increase of 65.45 million yuan compared to 1H23's -17.45 million yuan.

reviews

H1 opened 146 net stores, completed 61% of the annual plan, and expanded faster than expected. According to the company's announcement, as of the end of 1H24, the total number of stores was 914, a net increase of 146 from the end of 2023, an increase of 19.0%. 60.8% of the annual new opening plan (240 stores) formulated at the beginning of the year was completed, and the opening speed exceeded expectations.

It is expected that the performance of the new growth market will continue to be strong, efficiency will improve at the store and company levels, and revenue and profit performance will exceed expectations. Considering that 1H23's net profit attributable to mother was affected by the fair value income of 0.12 billion yuan of convertible preferred shares, net profit to mother increased by about 0.12 billion yuan year on year; adjusted net profit increased by 65.45 million yuan year on year, and adjusted net profit margin was about 2.4% (calculated based on revenue and adjusted lower net profit limit), the improvement in profitability exceeded expectations. The increase in profitability is expected mainly due to 1) the speed of store expansion exceeding expectations; 2) the number of stores in the first half of the year continued to grow, and the performance of new stores in new growth markets was strong; 3) operational efficiency at the store level and the company level improved, and profit margins were further improved.

Product, delivery, and brand advantages are outstanding. It is expected that the expansion of scale will lead to non-linear growth in performance, and will continue to be positive. Domino is positioned as a pizza expert. Fresh dough is kneaded by hand to guarantee taste. The number and degree of customization of pizza SKUs is higher than that of peers, and the wide price range can also meet cost performance and upgrade requirements; in terms of delivery, “free pizza vouchers within 30 minutes”, led by its own team of riders to ensure the speed and stability of contract fulfillment; the brand relies on the international pizza brand with the largest number of stores in the world, and emphasizes the creation of its own membership system. The adjusted net profit of the company has reversed losses. It is expected that as the size of stores expands, middle and back office costs will be further diluted, and profitability is expected to continue to increase.

Profit Forecasts, Valuations, and Ratings

The company has an outstanding competitive advantage in the pizza category. It is currently in a period of rapid store expansion. The net profit of 24E~26E is 0.019/0.031/0.187 billion yuan, adjusted net profit of 0.11/0.15/0.31 billion yuan, +1147%/+103% YoY, maintaining a “buy” rating.

Risk warning

Stock liquidity risk, risk of lifting the ban on restricted stocks, and falling customer unit prices.