1H24 results were inline, but the underlying is good (positive SSSG, OP margin improvement, etc.). Going into 2H24E, while the NP margin guidance has been raised to about 2%, we are slightly more optimistic, supported by: 1) positive SSSG in Jul 2024, 2) a surge in the number of members, 3) robust dine-in sales in the new growth markets, 4) accelerated store expansion, 5) more machines for store-level automation, and 6) more targeted and efficient marketing, etc.

The old markets were slightly under pressure, but more than offset by the robust new markets, hence the margins continued to improve. SSSG was a small negative in Beijing and Shanghai, which might lead to certain operating deleverage. However, we need not to be worried because the SSSG is still very robust in the new markets. In fact, average monthly sales per store in new markets reached RMB 380k in 1H24, which has already surpassed the level in Beijing and Shanghai. Moreover, according to management, out of the 42 stores recently opened, more than 18 stores have already achieved breakeven, where their payback period is less than 9 months. Therefore, overall restaurant-level OP margin increased to 14.5% in 1H24, from 14.0% in 2H23 and 13.5% in 1H23.

Management has raised its FY24E NP margin target, but we are relatively more confident. Despite the tough industry environment, we are still confident that DPC Dash can continue to deliver solid sales growth in 2H24E, supported by: 1) positive SSSG in Jul 2024 and the positive guidance (management expects SSSG to stay positive in both 3Q24E/ 4Q24E), 2) a surge in the number of loyalty members by 78% YoY to 19.4mn in 1H24, which could further drive volume growth as these members all have a higher purchase frequency, 3) non-delivery mix is low in the new markets and delivery services can be re-opened whenever certain growth is needed, and 4) store expansion acceleration in 1H24. By expecting a similar level of NP margin in 2H24, vs in 1H24, management is actually raising its NP margin target in FY24E to around 2% (up from 1% to 1.5%), but we are slightly more confident as we see various positives like: 1) further ramp up of the new stores in new markets, 2) excellent staff cost control in 1H24, even with extra hiring and training of staff for all the new stores in FY24E, 3) introduction of more automation machines at the store level, and 4) more precise and targeted marketing already in place.

Maintain TP of HK$ 81.20, based on 1.7x FY25E P/S (unchanged). The counter is trading at 1.4x FY25E P/S, 54% higher than peers' average of 0.9x. But it is still attractive, in our view, given the 34% sales CAGR during FY23-26E. As the stock is going to be included in the stock connect programme since Sep 2024, the broadening of the investor base should be a benefit to the Company, and hence we have turned more optimistic.

Store expansion in FY24E remains on track. The growth of net new store openings has been accelerated (from 31% in FY23 to 36% in 1H24), and the company has already achieved 95%+ of the 240 new stores target in FY24E. For FY25E/ 26E, management is guiding a 300 to 350 new stores target.

1H24 results inline with positive profit alert but the underlying is solid. Sales increased by 48% YoY to RMB 2.04bn while net profit rose by 25% YoY to RMB 11mn, both inline with the pre-announced profit alert. The increase in staff costs (+30% YoY) was better than CMBI est. but that was kind of offset by higher-than- expected rental expenses (+40% YoY). SSSG was at 3.6% in 1H24, which is still an impressive number as it was achieved under a high base (+8.8% in 1H23) and already outperformed peers by a mile. The daily sales per store was at RMB 13,515, up 10% YoY in 1H24, and continued to improve from the RMB 12,842 in 2H23 and RMB 12,275 in 1H23. Noted that some investors might be worried by the 5% drop in ASP to RMB 83.6 in 1H24. However, this was only due to the increase in non-delivery sales contribution, to 46% (vs 64% in 1H23), as many of the new stores were too busy to cope with the dine-in orders and had suspended the delivery services. In fact the level of promotion was limited and under control as GP margin remained fairly stable, at 72.7% in 1H24 (vs 72.4% in 1H23).