Restaurant operations improved markedly in 2023, with an upward trend. Te Hai International is expected to accelerate growth in 2023, achieving revenue of US$686 million, +23% year over year; net profit to mother of US$25.65 million reversing year-on-year losses; net interest rate to mother of 3.7%, reversing annual report losses for the first time. The restaurant-level profit margin was 9%, +4.9pct year on year. 2H23 achieved revenue of US$362 million, +12% month-on-month and +16% year-on-year; net profit of 21.78 million yuan to mother. Without considering other gains and losses such as exchange and depreciation, we estimate 1H/2H/2023 core net profit of 1096/1340/24.36 million, core net interest rate 3.4/3.7/ 3.5%, 2H23 +2pct year over year. The company attaches great importance to improving quality and efficiency. We believe that as management reforms advance, UE will become more mature, and same-store revenue, expansion speed, and profitability can all be further improved. In the medium to long term, there is plenty of room for the Haidilao brand to go overseas. We expect the 24-26 EPS to be 0.08/0.10/0.11. Based on 25X24E PE (see comparable company Wind 24 and Bloomberg's agreed global average of 23 times PE, the company is in a period of rapid growth, and overseas demand is broad), we will give a target price of HK$15.65 to maintain the “purchase”.
The 2H peak season was impressive, driving the restaurant-level profit margin to continue to rise. The company actively improved the level of store management and carried out diversified marketing. The 1H/2H/2023 Tehai store turnover rate was 3.3/3.8/3.5 times per day, and the annual same-store turnover rate reached 3.6 times per day (vs22:3.3 times), receiving a total of 26.7 million visitors. The average daily sales of a single store was US$16,300, +5.8% over the same period last year. By region, Southeast Asia/East Asia/North America/Other regions turned to 3.5/3.6/3.7/3.8 times/day (vs1H23:3.3/3.1/3.2/3.5 times/day), with significant improvements in East Asia and North America. Restaurant management efficiency continued to be optimized, and the overall restaurant level profit margin reached 8.3/9.6/9.0% in 1H/2H/2023. The company adheres to the localization+standardization strategy to upgrade the experience or effectively drive the same store to rise. On the other hand, the company is strengthening territorial collection, and raw materials/labor/single-store investment costs are expected to continue to improve, boosting restaurant profit margins.
Global expansion is expected to accelerate. The new blue ocean of Chinese food overseas has broad demand and a good pattern. By the end of '23, the company's store network covered 12 countries, with 115 stores (70 in Southeast Asia, 17 in East Asia, 18 in North America, and 10 others), opening 5/4 new stores throughout the year. In '23, the company re-evaluated the quality of reserve stores and adjusted the “headquarters - regional manager - store manager” group structure to “headquarters - regional manager - country head - store manager”, shortening the management radius and sinking some headquarters responsibilities to the front line of the region, which is beneficial to improving operational agility and efficiency. We believe that the refinement of the company's reserve stores and the optimization of the organizational structure have laid a solid foundation for subsequent expansion. With UE's maturity and accumulation of scale effects, the expansion is expected to accelerate further in 24 years. We continue to be optimistic about the overseas Chinese food pattern and the competitiveness of going overseas with Haidilao.
Target price HK$15.65, maintaining “Buy” rating
Referring to past store opening trends, the company is expected to open 10/16/20 new stores in 24-26, with revenue +1/1.2/ 1.2% year-on-year. EPS is expected to be 0.08/0.10/0.11 US dollars in 24-26 (24-25 years ago value:
$0.08/$0.10). Considering that the company is in a period of growth and there is broad demand for Chinese food overseas, the premium rate was lowered slightly. Comparing the uncertainties of overseas expansion, the premium rate was reduced slightly. Comparing the company's 24-year Wind and Bloomberg's agreed global average PE of 23 times, giving the company 25X 24-year PE, with a target price of HK$15.65.
Risk warning: expansion falls short of expectations, market competition intensifies, and residents' willingness to spend in various countries has declined.