Key points of investment
Results slightly exceeded expectations, and 2023H2 profits continued to grow month-on-month. The company released its 2023 annual report, with annual revenue of 41.45 billion yuan (yoy +33.6%), of which Haidilao Restaurant's operating revenue was 39.27 billion yuan (yoy +35.7%), achieving a high growth rate of 1.04 billion yuan (yoy -18.6%). The net profit to the mother was 4.5 billion yuan (yoy +174.6%), and the net profit margin to the mother was 10.9%. The annual results slightly exceeded the previous forecast. 2023H2's revenue was 22.57 billion yuan, +19.5% month-on-month. Excluding exchange profit and loss, the net profit returned to mother was about 2.35 billion yuan (2023H1 was 2.07 billion yuan, 13.5% month-on-month growth), and the net interest rate after restoration was 10.4%. The profit margin fell 0.5 pct from H1 due to an increase in the cost side. The company's dividend rate increased by 50 pct to 92.6% in 2023, and the total dividend amount reached 4.05 billion yuan. The company's capital expenditure dropped sharply during the mature development stage, and we expect the dividend rate to stabilize at a high level in the future.
Continuously optimizing the store structure, the 2023H2 turnover rate bucked the trend, leading the industry. By the end of 2023, the number of the company's stores reached 1,374 (9 new stores opened, 26 stores restarted, 32 adjusted and closed, a total net increase of 3). In 2023, the company continued to strengthen the assessment of store managers, optimize inefficient stores to ensure operating efficiency, and the newly opened stores performed steadily. The overall customer unit price for the whole year is 99.1 yuan (yoy -5.5%), and the turnover rate for the full year of 2023 is 3.8 times. We expect the 2023H2 turnover rate to rise 4.2 times, compared to 2023H1+0.9 times. We expect that the volume and price changes are mainly due to the company actively adjusting prices to boost the turnover and the increase in college student traffic. In 2023, same-store sales yoy +27.7%, same-store turnover rate 3.9 times, yoy +30%. Looking at the subregions, the company's revenue for Tier 1, Tier 2, Tier 3 and below was +39.6%/37.7%/32.2% year over year, with Tier 1 and 2 cities recovering faster. The revenue in Hong Kong, Macao and Taiwan regions of China in 2023 was +32.7%, the same store turnover rate was 4.2 times per day, and yoy +20%.
Gross margin increased steadily throughout the year, and 2023H2 labor costs increased month-on-month. The gross margin reached 59.1% (yoy+0.7pct) in 2023. The decline in raw material prices and proper product portfolio optimization effectively hedged the impact of customer order adjustments.
2023H2's gross margin dropped slightly by 0.3 pct month-on-month due to increased turnover and changes in the customer flow structure. At the same time, the company increased single-store staff allocation and increased incentives for frontline employees. Labor accounted for 32.2% (23H1+1.67pct month-on-month), and rent and discount benefits turnover increased. In total, -1.95pct month-on-month, the income tax rate rebounded to 26%.
2024 The same store upgrade and expansion will continue, and joining new brands will open up a second growth curve. In 2023, the company stepped up product development efforts and launched more than 300 new products, and successfully won back young consumers through innovative services and marketing such as concert bus transfers and subject 3 dances. Looking ahead to 2024:1) We expect the company's turnover rate to rise to 4+ times per day in 2024, and the turnover in the first-tier, Hong Kong, Macao and Taiwan regions will be slightly higher than in other cities. 2) The main brand stores have been added by 70-80 (including 20 franchisees), and profit margins are expected to increase steadily and slightly along with revenue scale effects, cost project optimization, and introduction of franchises; 3) Emerging brands such as “Hi Lao”, “Brother Miao”, and “Three Meals of Grain” will continue to experiment with expansion.
Profit forecast and investment rating: We fine-tuned 2024-26 net profit to $51/57/62 billion yuan (the previous value of net profit to mother in 2024-2025 was 51/5.7 billion yuan, up 14%/11%/9% year-on-year, and the current closing price corresponds to a 3-year dynamic PE of 17/16/14 times. Continue to be optimistic about the company's performance flexibility and strong certainty, and maintain a “buy” rating.
Risk warning: Competition in the industry intensifies; business recovery falls short of market expectations. Food safety and the risk of negative news.