Incident: On August 15, 2024, the company announced the acquisition of minority shareholders' shares in the holding subsidiary. It plans to use 0.294 billion yuan of its own capital to transfer 49% of the holding subsidiary Nanjing Wanhao Commercial Management Co., Ltd. After the acquisition was completed, the company held a total of 75.52% of Nanjing Wanhao's shares through direct shareholding and indirect shareholding of Nanjing Wanxing Commercial Management Co., Ltd.

Basic situation of the holding subsidiary Nanjing Wanhao: Nanjing Wanhao's shareholders include Nanjing Wanxing Commercial Management Co., Ltd. (51% subsidiary of the company), Xinghua Dewen Management Consulting Co., Ltd. (actual controller Peng Dejian, original founder of the brand), Xinghua Suhao Management Consulting Partnership (actual controller Peng Dejian), and Xinghua Geometry Management Consulting Co., Ltd. (actual controller Zhang Haiguo), which hold 51.00%, 29.85%, 14.25%, and 4.90% of the shares respectively.

Nanjing Wanhao's financial situation: Achieved revenue of 2.913 billion yuan in '23, accounting for 31.35% of group revenue, realized net profit loss of 0.055 billion yuan, realized revenue of 1.402 billion yuan in 24Q1, accounting for 29.03% of group revenue, realized net profit of 0.027 billion yuan, and net interest rate of 1.89%.

The acquisition consideration is reasonably valued to increase shareholders' wealth. Based on the acquisition consideration, Nanjing Wanhao's valuation is 0.6 billion yuan (0.294 billion yuan/ 49%). Assuming that Nanjing Wanhao's net profit for 24 is 4 times Q1, the acquisition valuation is 5.66X. Considering Nanjing Wanhao's growth, PE corresponding to 24 years will be less than 5.66X. Given the higher valuation levels of listed companies, the acquisition will help increase shareholders' wealth.

The subsidiary's control capabilities have been further enhanced, which is conducive to long-term development. The transaction further integrates the company's internal resources, helps the company to coordinate resource allocation and business layout, improve overall operational efficiency, and better achieve the company's overall business goals.

Investment advice: Currently, the company continues to expand its stores rapidly, benefiting from the effects of scale and increasing profitability. The withdrawal of minority shareholders' shares has further increased profits to the mother, and is optimistic about long-term development. We expect the company's 2024-2026 revenue to be 26.604/42.163/54.594 billion yuan, respectively, up 186.26%/58.49%/29.48% year on year. The company is expected to achieve net profit of 0.166/0.391/0.627 billion yuan in 2024-2026, up 300.09%/135.84%/60.11% year on year, respectively, corresponding to PE 23.0/9.8/6.1X in 24-26, maintaining” Recommended” ratings.

Risk warning: store expansion is not as fast as expected, industry competition intensifies, food safety risks, etc.