For the full year of 2023, the company achieved net profit of 13.22 million yuan. Looking at the year-on-year loss to profit, the company achieved revenue of 5.164 billion yuan in 2023, an increase of 20% over the previous year, and realized a net profit of 13.22 million yuan to the mother, turning a loss into a profit over the previous year. Looking at 23H2 alone, 2023H2 achieved revenue of 2,570 billion yuan, an increase of 14% over the previous year, and realized net profit to mother - 52.87 million yuan. Revenue growth is mainly due to the steady expansion of the number of stores, with a net increase of over 500 direct-run stores throughout 2023.

Efforts to reduce costs have finally paid off, and profitability has increased

In terms of gross margin, the company achieved a gross profit margin of 67% for the full year of 2023, which is almost the same; 2023H2 fell by 2 pcts month-on-month, which we expect is mainly due to increased competition dragging down customer unit prices. In terms of cost rates, the company's refined management capabilities have improved markedly. In 2023, the company's employee costs/actual rental costs improved 5/2 pcts year-on-year, respectively. We think this is mainly due to the scale effect after the increase in order volume. In terms of net interest rate, the company achieved a net interest rate of 0.2% for the full year of 2023, turning a loss into a profit. Looking at 2023H2 alone, net interest rates are under pressure. We think it is mainly due to increased competition under pressure on average daily order volume and weakening of the scale effect.

Tuodian has entered a new stage of two-wheel drive, increasing member loyalty and further optimizing store efficiency 1) Store side: At the end of 2023, it had 1574/81 direct-managed/franchised stores, in line with the general trend of the industry and will use franchises to accelerate store expansion. In 2023, the company opened more than 500 stores to achieve rapid store-side expansion.

According to the company's announcement, the company plans to add 200 direct-run stores in 2024, and plans to add 2000-3000 new affiliate stores within 2-3 years, of which several hundred are scheduled to be completed in 2024. Store expansion is accelerated, the company's size advantage is expected to be further demonstrated, and profitability is expected to gradually rise.

2) Store effectiveness: Achieve 17.7% store profit margin for managed accounts in 2023, and there is still potential to reach the target of 20%. In 2023, the company achieved significant improvements in labor cost ratio, actual rent rate, and takeout rate. Eventually, it achieved a 17.7% profit margin for managed stores, which achieved a significant increase over the previous year, but there is still room for improvement until the target of 20%.

Profit forecasting and valuation

Nai Xue is a leading high-end tea manufacturer. Currently, it has more than 1,000 stores and has become the leading brand for high-end tea drinks.

In 2023, the company's store model improved dramatically year on year. In line with the general trend of consumer recovery, we are optimistic that the company will continue to accelerate store expansion and consolidate its market position. We expect the company's net profit to be 1.883/2.59/364 million yuan in 2024-2026, with year-on-year growth rates of 42%/40% in 2025-2026, respectively. Considering the high growth of the tea circuit, the company's brand advantages are gradually showing, and we maintain the “increase” rating.

Risk warning: The modern tea industry is fiercely competitive, food safety, and the speed of opening stores does not meet expectations, etc.