The company released its 2024 semi-annual report. According to the announcement, the company achieved operating income of 1.271 billion yuan in 2024, an increase of 17.5% over the previous year; net profit attributable to mother and net profit without return to mother were 80.9476 million yuan and 75.6427 million yuan respectively, or -44.40% and -27.96% year-on-year respectively. 24H1's revenue achieved a high year-on-year increase, driven by new stores, but in terms of profit, profits declined year-on-year due to compensation for store demolition in the same period last year, large upfront costs for opening a new store this year, and depreciation and amortization expenses. However, considering the continuous joint development of the company's three stages of catering, hotels, and food, and the gradual maturity of new store operations, future performance is expected to continue to grow, and we maintain our shareholding rating.

Key points to support ratings

The scale of revenue bucked the trend and grew strongly, and profits have yet to be fully released. Against the backdrop of poor prosperity in the restaurant market, the company's revenue achieved good growth. According to the company's announcement, in 2024, H1 achieved operating income of 1.271 billion yuan, +17.5%; net profit to mother of 80.9476 million yuan, or -44.40% year on year; net profit after deduction of non-return to mother 75.6427 million yuan, -27.96% YoY, due to store demolition compensation and disposal income during the same period last year (50.48 million yuan), one-time investment in newly opened stores, depreciation and amortization, and new The year-on-year profit performance for the first half of '24 was lower than the revenue performance in the first half of '24 due to factors such as the store is still in a climbing period, large capital expenditure investment, and an increase in financial expenses (11.37 million yuan).

Three rounds of joint business development create multiple growth curves for the company. The company is based on the catering business as the core foundation, with three rounds of joint development of restaurants, hotels and food. The company has 118 stores, including 54 restaurants in Tongqing Building, 7 Fumao Hotels, and 57 new brand stores (including 9 directly managed by Tongqing Lou Dabao).

1) Catering business: explore and develop the cultural connotations of Tongqinglou as an old Chinese restaurant brand to form barriers to large-scale catering, banquet and wedding capabilities+chain standardization systems; 2) Hotel business: The company's innovative new “Fumao” hotel business model has strong profitability and market competitiveness. By the end of 2024, the company plans to complete the opening of 10 Fumao hotels as the main business format. In 2025, the 10 Fumao hotels will reach a mature operating period; 3) Food business: 24H1 continues to launch a series of rice dumpling products with the characteristics of major hotels. Sales increased 119.54% year over year during Dragon Boat Festival. Furthermore, as of the date of disclosure of the announcement, 80 Fresh Meat Dabao stores have opened, and 60 are about to open. It will also be an important sales channel for Tongqinglou Food.

Stores continue to expand, and new stores are in a climbing phase. 24H1 opened 5 new stores, adding an additional store area of 0.2155 million square meters, including three larger Fumao Hotel, a large restaurant store, and a tens of thousands of square meter wedding hall store. It is expected that there will be 4-6 new stores in the second half of this year, with an additional construction area of about 0.055 million square meters. 24H1 newly opened stores added 0.206 billion yuan in revenue, down 5.51% from 2023, but still up 0.54% from 2019, and have good business resilience. New stores were opened on a large scale in the first half of the year. Various business formats within the store invested a large amount of start-up expenses, while the revenue of the new stores was climbing, causing the new stores to lose money.

valuations

The company's three-wheel drive strategy continues to advance, and profits cannot be fully released due to factors such as expenses brought about by opening new stores in the short term. However, in the long run, along with the increase in the number and area of the company's stores, the scale of revenue and profit is expected to increase. Considering the impact of short-term expenses, we forecast EPS for 24-26 to be 1.18/1.49/1.84 yuan, respectively, and the corresponding price-earnings ratio will be 13.7/10.8/8.8 times, respectively, maintaining an increase in holdings rating.

The main risks faced by ratings

Market competition heightens risks, and there is a risk that subsequent recovery in consumer demand such as food and beverage and store expansion will fall short of expectations.