1H24 has excellent operating performance, and the profit side is dragged down by non-recurring factors

Tehai issued a profit warning on August 2. It is estimated that 1H24's revenue will not be less than 0.37 billions/yoy +14.2%; net profit to mother is expected to lose 4-5 million US dollars, mainly affected by exchange losses, listing expenses, advance start-up costs, and reduced government subsidies. If the above factors are excluded, it is expected that a low to medium single-digit net interest rate will be achieved, with a slight increase over the previous year. The company's performance is basically in line with our forward-looking expectations (1H24 forward-looking revenue:

3.73 to 0.382 billion US dollars, net profit to mother: converted to loss). The company's turnover rate has increased significantly over the past 24 years, store expansion has accelerated, and operational efficiency has continued to improve. We expect non-recurrent factors such as 2H24 exchange losses to be affected or reduced. In the medium to long term, overseas Chinese food demand is broad, the company has an outstanding first-mover advantage, and various business formats are being actively incubated, and there is plenty of potential for growth. We expect the company to deduct non-EPS of $0.05/0.06/0.08 for 24-26. Based on 30X25 PE (comparable to Wind/Bloomberg's consensus estimate of 21xPE in '25, the company is in a period of rising stores, and Chinese food outlets are scarce), and the target price is HK$14.06.

1H24 turntable improved significantly, restaurant OPM increased year-on-year

1H24's business performance was impressive, with a turnaround of 3.8 times per day (vs1H23/1q24:3.3/3.9 times), +15% compared to the same period, mainly due to improved management efficiency and the release of domestic outbound travel demand to a certain extent.

At the profit level, according to the company's announcement, the overall profit margin of 1H24 restaurants increased year-on-year. The net profit side includes factors such as exchange losses (19.5 million dollars vs. 1H 23:10.71 million dollars), reduction in listing fees and government subsidies (1H23 2.656 million dollars). If the above effects are added, we calculate 1H24's adjusted net profit of about 12 million dollars, corresponding to a net interest rate of 3.4%, +0.3 pct compared to the year-on-year (based on the median income tax rate of 20%). On a quarterly basis, 2Q24 expects to achieve revenue of no less than 0.182 billion, +11.9%/-2.8% month-on-month, respectively, and net profit of -54 to +0.46 million US dollars.

Expansion is expected to accelerate in '24. Overseas Chinese food platforms have great potential as of 1Q24. The company has operated 119 stores and opened 4 new stores in 1Q (vs. 4 new stores opened throughout 2023), and the pace of opening stores has accelerated markedly. Over the past 24 years, the company has continuously optimized the organization and operation management mechanism, and placed emphasis on the active performance of front-end employees. As operational experience continues to accumulate, we expect that there is still room for improvement in OPM at the restaurant level in the future. According to the 2024/06/21 announcement, Yang Lijuan, the former CEO of Haidilao, was transferred to the post of CEO of Tehai International, demonstrating the company's determination to develop. Based on the long term, the company is actively incubating various business formats such as halal hot pot and noodle restaurants, and is expected to create a second growth curve. We continue to be optimistic about the overseas Chinese food pattern and blue ocean opportunities, as well as the company's scarce overseas competitiveness and first-mover advantage.

Target price HK$14.06, maintaining “Buy” rating

Considering the turnover situation and exchange impact in the first half of the year, we expect the non-EPS deduction to be 0.05/0.06/0.08 US dollars (previous value: 0.08/0.1/0.11 US dollars) in 24/25/26. Considering that the company is currently in a period of rapid store opening and climbing, the cost of opening a store is dragging down profits, and the scarcity of Chinese food outlets is expected to raise the valuation and increase the premium rate. Refer to comparable companies Wind and Bloomberg's global consensus average of 21 times PE, giving the company 30X 25-year PE with a target price of HK$14.06 (HK$14.06) = 1:0.128).

Risk warning: Expansion falls short of expectations, market competition intensifies, and residents' willingness to spend in various countries is declining.