Helens 1H23 results are in line with profit forecasts
The company announced 1H23 results: revenue of 710 million yuan, -18.7% year-on-year; net profit of 157 million yuan (vs. 1H22, net loss of 304 million yuan); adjusted net profit of 177 million yuan (excluding pub optimization and adjustment losses of 20 million yuan). The results are in line with previous profit forecasts. By the end of June 2023, the number of Helens Taverns had reached 653 (515 directly managed, 138 franchise partners), 25 new stores were opened and 139 were closed in 1H23; as of 8/25, the number of Helens Taverns had reached 562 (425 directly managed, 126 franchised partners, 11 “Hi Beer Partners”), and 91 have been cleared since the end of June.
There is a clear differentiation in daily sales at a single store. 1H23 daily sales per store were +14% to 0.82 million yuan: by city, first-tier and second-tier (0.84/0.83 million yuan) were slightly higher than third-tier cities and below (0.79 million yuan), and the daily sales of single stores were about +15% +/ +26% /flat, respectively. By model, franchise stores (90,000 yuan) were higher than directly-managed stores (0.79 million yuan, +10% year-on-year) by about 14%. Separate business hours, new stores opened in 21-22 (around 70,000 yuan) were lower than 1H23 new stores (0.82 million yuan), 20 new stores (0.96 million yuan), and new stores opened in 19 and before (10,600 yuan); daily sales of the same store i were +0.1%, and the daily sales of 188 stores in the same store (about 11,600 yuan) exceeded the overall daily sales of a single store (about 0.82 million yuan) by more than 40%.
Benefiting from an optimized product structure and reduced promotions, 1H23 alcohol increased its gross margin. 1H23's gross margin was +6.3 ppt to 72.3% year on year, of which the gross margin of Helens's own alcohol was +0.7 ppt to 79.4% year on year (the share of revenue from its own beverages was +5.2 ppt to 42.4% year on year, benefiting from the launch of new products such as Passion Fruit Daza and Tonton Barrels of Popsicles), while the gross margin of third-party brands of alcoholic beverages was +7.1 ppt to 55.6% year on year.
Development trends
Daily sales were under pressure in July. Focus on the recovery of daily sales and profit after the price reduction. Affected by the consumer environment, we estimate that daily sales have been under pressure since May. In May, June, and July, the same store recovered 75%, 80%, and 70%, respectively, compared to '19. Overall daily sales in July were about 70,000 yuan, down from January-June (partly due to the low season), and basically the same as last year. Starting 8/27, the company adjusted 13 types of bottled beer from Sunday to Thursday to 6.99 yuan/bottle ii (previously 9-10 yuan), and plans to continue promoting new ones to control gross profit margins. Pay attention to the subsequent recovery in daily sales and profits.
Focus on the development of new partner models and store efficiency. The company launched the “Hi Beer Partner” program in early June. As of the 8/25 announcement, the number of partners signed has exceeded 80 (the company estimates that it will take about 1-3 months from signing the contract to opening the store), and 11 companies have been opened (we have observed that most of them are located in third-tier cities and county-level cities). As of the 8/25 announcement, the average daily floor efficiency of a new model pub is about 2.6 times that of opening a new store in 1H23. We are concerned about the opening progress and efficiency of the new partner model.
Profit forecasting and valuation
Considering the resumption of pressure on daily sales and adjustments due to the closure of some stores, adjusted net profit for 23 and 24 was lowered by 26% to 317 million yuan and 49% to 407 million yuan, which currently corresponds to 22 times P/E in 24. Maintaining the outperforming industry rating, the target price was lowered by 46% to HK$10, corresponding to 27 times P/E in 24 years, with 23% upside.
risks
The restoration of store efficiency and performance delivery fell short of expectations; store expansion fell short of expectations.