Description of the event

2024H1 achieved revenue of 1.26 billion yuan, a year-on-year decrease of 11.0% (previously estimated at about 1.25 billion yuan), and net profit to mother of 0.033 billion yuan, a year-on-year decrease of 67.7% (previously estimated at 0.30 to 0.035 billion yuan). By the end of June 2024, the total number of the company's stores reached 3,456, including 1,735 self-operated stores and 1,721 franchised stores, covering 323 cities in 28 provinces, autonomous regions and municipalities in China.

Incident comments

The decline in omnichannel revenue is under pressure, and customer unit prices have been adjusted significantly. 2024H1 revenue decreased 11.0% year over year, with total sales down 7.4% year over year and average order consumption down 10.4% year over year. Looking at the model: The decline in self-operated stores was 7.2%, and the decline in online channels was 17.1%. The decline in offline channels was mainly related to the decline in stores. The share of takeout revenue of self-operated stores increased by 0.9 pct to 21.0% year on year. Based on the average number of stores at the beginning and end of the period, the average store efficiency of 2024H1 self-operated stores was about 0.4 million yuan, down 19.8% year on year. The average consolidated revenue of franchised stores was about 0.17 million yuan, down 12.9% year on year; by product: duck and duck by-products fell 10.3% year on year, other products The revenue share of duck and duck by-products declined by 13.7%, and the share of revenue from duck and duck by-products rebounded slightly to 79.0%.

Store adjustments have been increased, and the targeting of transportation hubs has been strengthened. The net closure of 250 stores in the first half of the year. By the end of June 2024, there were 1,735 self-operated stores, up 12.5% year on year and 1,721 franchised, down 20.5% year on year, with the number of franchised stores accounting for 49.8% and revenue accounting for 26.0%; by location, number of stores, transportation hubs & supermarkets +55.4%, business districts & commercial supermarkets/-9.9%, community/ -15.5%, others/year-on-year; compared with the end of last year, transportation hubs, business districts & supermarkets, and communities had net opening of 245, and net customs, respectively Close 118 houses. Since this year, the company will focus on improving store quality, thoroughly analyze and judge the long-term growth potential of stores, and formulate plans for rectification or closure. Update site selection and management standards to adapt to consumer trends. In the first half of 2024, Wuhan piloted a “2-in-1 store” to meet diversified needs. By the end of June, there were 127 stores.

Raw material cost dividends have been released, and losses of joint ventures have a big impact. 2024H1's gross margin increased by about 2.9 pct year on year to 55.4%, mainly due to the downward impact of raw material costs; sales and distribution expenses accounted for 40.1% of revenue and +6.6 pct year on year, mainly due to the increase in offline self-operated stores, especially transportation hubs, which led to an increase in store rents and sales staff salaries and benefits; administrative expenses accounted for 9.5% of revenue/-1.8 pct year on year, the decrease was mainly due to the failure of previous equity incentives; financial expenses accounted for 0.5% of revenue per year -0.5 pct year on year, mainly due to the failure of previous equity incentives; financial expenses accounted for 0.5% of revenue per year -0.5 pct year on year, mainly due to the increase in offline self-operated stores, especially transportation hubs. Interest expenses decreased due to debt conversion. 2024H1 Joint Venture lost 33.7 million yuan, mainly due to changes in fair value between Shenzhen Tiantu Xingnan Investment Partnership (25% equity) and Hainan Tiantu Xingzhou Venture Capital Partnership (32.68% equity). The Huaxi Plant was put into operation in March 2024, increasing initial costs but improving logistics efficiency. In the long run, market expansion and sales growth will reduce logistics costs, form an efficient supply chain, improve store service efficiency, and support business growth.

Profit forecast and investment advice: The company's net profit due to mother in 2024-2026 is expected to be 0.077, 0.137, and 0.186 billion yuan, respectively, corresponding to the current stock price PE of 42, 23, and 17X, respectively, maintaining a “buy” rating.

Risk warning

1. The risk of slow recovery in demand;

2. Market competition risk;

3. Risks of rising costs.