DPC Dash Ltd reported 1H24 revenue of Rmb2.04bn (+48% YoY), profit attributable to owners of the company of Rmb10.9m (+25% YoY), and adjusted net profit of Rmb50.89m, higher than our expectation, mainly thanks to higher-than-expected same-store sales. We raise 2024E earnings per share forecast from Rmb0.33 to Rmb0.39, maintain 2025E forecast of Rmb1.41 and introduce 2026E forecast of Rmb1.97. We raise target price from HK$72.3 to HK$78, and with 22% upside potential, we maintain a Buy rating.

Steady store opening with healthy store payback. In 1H24, the company opened a net of 146 stores, including 12 in Beijing and Shanghai, and 134 in new growth markets. The total number of stores reached 914, of which 551 stores were in new growth markets, accounting for 60%. The company expanded to four new cities in 1H24, and as of the end of June, its stores were located in 33 cities, indicating upside potential. Of the 42 stores opened in the eight new cities at the end of last year and the four in the first half of this year, 18 stores have paid back, and the average payback period of the stores is expected to be within 9 months. The company plans to open 240 stores in 2024 and 300-350 stores in 2025 and 2026.

Consistent positive same-store sales growth. Same-store sales growth rate in 1H24 was 3.6%, which was the 28th consecutive quarter of positive same-store sales growth since 3Q17. The steady growth was due to continuous menu improvements, on-time delivery, and enhanced brand awareness, and we expect positive growth to continue in 2H24.

Improved store-level operating margins. In 1H24, the operating profit margin at store level increased by 1ppt YoY to 14.5%, of which raw materials and consumables cost ratio decreased by 0.3ppt, advertising and promotion cost ratio decreased by 0.5ppt, depreciation and amortization cost ratio decreased by 0.4ppt, and lease-related cost ratio decreased by 0.3ppt, partially offset by the increase in staff compensation cost ratio, mainly due to the impact of more store-level staff for training in advance.

Maintain Buy. We are optimistic about the potential of DPC Dash to expand in China's pizza market and maintain our Buy rating.

Risks: Same-store sales growth may fall short of expectations. Profit margins may decline due to the increase in staff compensation expenses.