Xiabuxiabu released its semi-annual report for 2023. At 23H1, the company's revenue was 2,846 million yuan/year on year +31.98%, compared to the same period in '19, +4.93%; net profit was 2,406 million yuan, turning loss into profit over the same period in '22, and 210 million yuan in the same period in '19. 23H1, gross profit margin 63.68% /year on year +0.57 pcts, compared to the same period in '19, +0.13 pcts; net interest rate 0.08%, year on year +13.05 pcts, compared to the same period in '19, -7.67 pcts.

The revenue performance of Xiabuxiabu/Minato increased month-on-month. Due to climbing factors, average single-store revenue has not recovered to the same period in '19. By brand, Xiabuxiabu 23H1 had revenue of 1,377 billion yuan/year on year +29.48%, compared to the same period in '19, -37.37%; Minato Minato 23H1 had revenue of 1,402 million yuan/+36.83% yoy, +185.96% over the same period in '19. Judging from the store opening situation, 23H1, Xiabuxiabu 23H1 had 843 last stores, 91 new stores opened and 49 closed at the end of 19H1, down 112 from the end of 19H1; 23H1 had 249 stores, 28 new stores opened and 3 closed at the end of '22, an increase of 188 over the end of 19H1; 23H1 opened 1 new store in Shanghai, and 2 stores operated in Shanghai at the end of 22H1. Judging from the average single store revenue performance, 23H1 Xiabuxiabu single store sales volume was 1.63 million yuan/year on year +24.41%, compared to -29.05% compared to the same period in '19; Minato Minato single store sales volume was 5.63 million yuan/year over year +8.80% /compared to the same period in '19.

We believe that 23H1 is driving the southward expansion of the restaurant network, but new stores in the Southern Market need to climb and the store model is still in the refinement stage. There is still a gap between customer acquisition capacity and old stores, and average single-store revenue is under pressure in the short term. Therefore, 23H1 Xiabuxiabu/Minato's average single-store revenue has not yet returned to the same period in '19. As the new store model fits and optimizes and the popularity of the new stores increases in the cities where they are located, the company's average single-store revenue is expected to recover and surpass the same period in '19.

Xiabuxiabu's multi-faceted strategic plan is beginning to bear fruit, and the Minato Minato brand is likely to steadily enter a period of steady development. Judging from the per capita consumption level, at 23H1, Xiabuxiabu's per capita consumption was 58.4 yuan/-7.5% year on year, +1.74% compared to the same period in '19; Minato Minato's per capita consumption was 142.2 yuan/year on year -3.3%. Judging from the occupancy rate/turnover rate performance, 23H1, Xiabuxiabu's turnover rate for the same period of 2.4/22 was 1.9/19 and 2.4 for the same period; Minato Minato's turnover rate for the same period in 2.1/22 was 1.9/19 and 4.1 for the same period in 1.9/19. The occupancy rate of Xiabuxiabu was the same as in the same period in '19, but the per capita consumption level increased slightly. We think it was due to the impact of cost-effective menu applications and southward expansion strategies on brand prosperity; Minato Minato's turnover rate declined compared to the same period in '19, mainly due to Minato Minato's high brand popularity base in '19. The popularity of the Minato Minato brand has gradually stabilized since '23, and has entered a stage of steady development. Looking forward to the future, there is plenty of room for optimization on the cost side of the company. Cost optimization can be achieved through advancing the digital process, unified procurement of raw materials and strengthening bargaining capabilities, and refined management of human resources.

Investment suggestions: We believe that the company is based on two major support points and three driving points, and still has strong competitiveness in the current hot pot restaurant market. 1) Private traffic support: The company's membership welfare system is perfect, brands under the group can flow to each other, and is good at using brand linkage and membership discounts to expand member coverage, which can continuously supply energy for store operations; 2) Supply chain support: High logistics efficiency, low food loss and stable raw material purchase prices are achieved through a digital logistics system and advanced upstream layout, leading to profit growth; 3) Xiabuxiabu: The cost performance menu has drainage effects; the brand announced a southbound store expansion strategy at the end of 2021, and the Southern City Hot Pot Market is segmented by the Blue Ocean, there is plenty of room for development. 4) Minato Minato: Continuous innovation and breakthroughs in pot bottoms and tea drinks guarantee strong brand potential. Afternoon tea time operations meet consumers' emotional communication needs, the pace of store expansion in Tier 1 and 2 cities is steady, and there is plenty of room for overseas expansion. 5) Take advantage: The store model is excellent, the Shanghai store has a good response, and there is plenty of room for growth. It is expected to become a new contribution point to performance in the long run. The company's net profit for 2023-2025 is estimated to be 174/4.02/684 million yuan. The corresponding PE is 20X/9X/5X, maintaining the “recommended” rating.

Risk warning: Store expansion is not as fast as expected, and market competition increases risk.