Key points of investment

The company released 2024H1 results, and revenue increased by about 15% year-on-year

2024H1, the company achieved revenue of 0.371 billion US dollars (yoy +15%), and revenue growth mainly stemmed from improved operating efficiency, which led to an increase in the turnover rate; 2024H1 achieved net profit of -4.58 million US dollars. The company converted statements in US dollars. The exchange only affects the statement data and does not reflect actual operations. If exchange gains and losses are deducted, 2024H1 achieved net profit of about 14.88 million US dollars, corresponding to a net interest rate of about 4%. Since 202H2, net profit after deducting exchange has been 4 consecutive It was positive for half a year, and the performance was outstanding. Net profit after deducting foreign exchange is mainly due to an increase in the turnover rate leading to an improvement in the share of actual rental costs and a significant optimization of the share of depreciation and amortization expenses.

Profitability continues to improve. In terms of gross margin of 8.7% at the 2024H1 restaurant level, the 2024H1 company achieved a gross profit margin of 66.4%, an improvement of 0.2 pcts year over year. The year-on-year decline in customer unit prices did not affect the gross profit margin. Therefore, we expect the decline in customer unit prices to be due more to exchange rate fluctuations at the non-operating level. The increase in gross margin is mainly due to improved supply chain efficiency and strengthened store management. In terms of cost rates, 2024H1's actual rental cost/other depreciation and amortization ratio increased by 0.8/1.4 pcts year on year, respectively. We expect this is mainly due to the natural decline in the share of rigid costs due to rising income, and the entry of some stock stores into a depreciation window period; the share of 2024H1 employee costs increased 0.8 pcts year over year, and we expect it to be mainly due to labor price inflation in some countries. In terms of profit margins, the profit margin at the restaurant level increased 0.4 pcts year-on-year, and the quality of operations was further optimized. After deducting exchange gains and losses, 2024Q1/2024Q2 achieved net interest rates of 3.5%/4.5% after deducting exchange gains and losses, respectively. The trend of improving business quality is obvious from quarter to quarter.

The turnover rate has led to an increase in profit margins. The number of new 2024H1 stores has surpassed the full year of 2023.1) The turnover rate in each region showed a double-digit year-on-year increase, and restaurant-level profit margins continued to improve year over year. Looking at the subregions, 2024H1 was 3.7/4.1/4.1/3.9 times per day in Southeast Asia/East Asia/North America/other regions respectively, achieving a double-digit trend year over year, showing the company's strong global operating strength. We believe that the general rise in various regions is mainly based on the gradual development of the company's proper localization strategy and refined management capabilities. As the turnover rate continues to rise, profit margins at the restaurant level continue to rise. 2022 H1/2023H1/2024H1 companies achieved restaurant-level profit margins of 1.5%/8.3%/8.7% respectively. In the future, as operating capacity is further demonstrated, the turnover rate will rise further, and profit flexibility is expected to be further unleashed.

2) 2024H1 has opened 8 new stores, and the opening of stores is speeding up; the Red Pomegranate plan has been released, and the multi-brand strategy has further opened up room for long-term growth. 2024H1 has opened 8 new stores. Compared with the net opening of only 4 stores in 2023, the pace of opening stores has accelerated markedly. Combined with the current pace of store opening, we expect the growth rate of store openings throughout 2024 to surpass last year, and the number of store openings is expected to reach double digits. At the same time, the “Red Pomegranate Plan” was released, and it can be expected that multiple brands and multiple business formats will operate. Considering that the current total number of the company's stores is only 122, from a long-term perspective, the global layout still has plenty of room to open.

Profit forecasting and valuation

As a leading overseas Chinese food brand, the company has broad prospects along with the recovery of overseas consumption and is empowered by brand advantages and the establishment of a new supply chain. We expect the company to achieve net profit of 33/50/66 million US dollars in 2024-2026, with growth rates of 30%/49%/33% in 2024-2026, corresponding to PE 30/20/15 times, respectively. In line with the company's development stage, we maintain an “gain” rating.

Risk warning: macroeconomic downturn, food safety, store expansion falling short of expectations, etc.