1H24 results are in line with previous forecasts

Tehai International announced 1H24 results: revenue +14.5% to 0.371 billion US dollars; net loss to mother of 4.58 million US dollars (profit of 3.54 million US dollars in the same period last year), profit of 0.0174 billion US dollars after excluding listing expenses and net exchange losses, corresponding profit margin of 4.7% (+0.3ppt year on year). The results are in line with previous forecasts. By the end of June, the company had a total of 122 restaurants, opened 8 new stores in 1H24 (5 in Southeast Asia, 2 in North America, 1 in East Asia), and closed 1 Southeast Asian store. The 1H24 overall/same-store turnover rate was 3.8 (vs. 1H23 was 3.3); the customer unit price was 24.6 US dollars, -3.5% year over year, mainly affected by the appreciation of the US dollar. The 1H24 restaurant OPM was +0.4ppt to 8.7% year over year, mainly due to the operating leverage effect of the turnover, partly offset by the company increasing the number of restaurant employees to improve the customer experience and raising minimum wage standards in some countries (H1 company's labor cost ratio +0.8ppt to 34.1% year over year).

By region, 1H24 Southeast Asia had a turnover rate of 3.7 (1H23 was 3.3); East Asia's turnover rate was 4.1 (1H23 was 3.1), customer unit price was -2.8% to 27.8 US dollars; North America's turnover rate was 4.1 (1H23 was 3.2), customer unit price was -13.2% to 42.6 US dollars; other regions had a turnover rate of 3.9 (1H23 was 3.5), and the customer unit price was +4.2% to 42.3 US dollars.

Development trends

Focusing on improving customer satisfaction, there was still a year-on-year increase after the July-August turnout. The 1H24 turnover increased significantly year-on-year. We believe that the proportion of local customers in some US stores has increased significantly, mainly because the company linked the performance evaluation of managers at various levels to the turnover rate, and 1H24 has increased the number of employees in a single store to improve the service experience. At the same time, with national leaders as the core, it has boosted customer flow through localized products and marketing measures (1H24 countries have been optimized over 500 times). After taking office, CEO Yang Lijuan focused on indicators such as store site management and customer satisfaction, and whether to effectively “connect interests and lock in management.” Looking ahead to the second half of the year, with a high base for the same period last year (last year's Q3/Q4 turnover was 3.7/3.9), we believe that the turnover is expected to remain at a high level (we estimate the year-on-year increase in the company's turnover in July-August this year). In terms of customer unit prices, we estimate that customer unit prices in local currency in most regions of 1H24 will increase year on year. We expect that customer unit prices will remain stable in the second half of the year (among them, North America may continue targeted marketing since 2H23, and other regions have stabilized or slightly increased).

The main brand is steadily expanding its stores and implementing the “Red Pomegranate Plan” to incubate new brands. The company insists on “bottom-up” store expansion and attaches importance to the quality of new stores. Of the 8 new H1 stores, 6 have achieved stable profits. Currently, there are more than 10 stores that are being negotiated, contracted, and renovated on a monthly basis. Furthermore, based on the vision of becoming a global integrated catering group, the company draws on the operating experience of multiple brands in Haidilao in China to implement the “Red Pomegranate Plan” to better incubate new brands. The company has set up a management team to enable innovative projects, optimize incentive policies, encourage national leaders to participate in new brand management, and improve operational efficiency through the sharing of supply chain, personnel and other resources between the main brand and the new brand.

Profit forecasting and valuation

Maintain the adjusted net profit forecast. The current adjusted P/E is 33/23 times corresponding to 24/25. Maintaining an outperforming industry rating/target price of HK$14.7, corresponding to an adjusted P/E of 38/26 times in 24/25, with an upward margin of 15%.

risks

Turnover/store/profit falling short of expectations, food safety risk, overseas policy risk, exchange rate fluctuation risk.