Incident: The company released its 2024 three-quarter report. In 2024Q1-Q3, the company achieved operating income of 1.865 billion yuan, +10.81% year-on-year, realized net profit of 0.083 billion yuan, or -58.92% year-on-year, and realized net profit without return to mother was 0.076 billion yuan, or -52.51% year-on-year. Among them, the company's revenue for the third quarter of 2024 was 0.594 billion yuan, -1.23% year on year; net profit attributable to mother for the single quarter was 0.002 billion yuan, -95.74% year over year; and net profit after deducting non-return to mother for the single quarter was 0.147 million yuan, -99.73% year over year.

The performance of the same restaurant business was slightly under pressure, and the new store business continued to climb.

2024Q1-Q3's restaurant business fell 13.42% compared to the same period last year. The main reason is that the data base for the same period last year was high. 2023 was the first year after the pandemic. Demand for some banquets was delayed and released centrally during the pandemic. Explosive demand in turn led to a high data base last year. At the same time, demand in the wedding banquet market declined a lot in 2024 due to popular “no spring” claims. The revenue of the same restaurant business of 2024Q1-Q3 was basically the same as in the same period in 2019. 2024Q1-Q3's newly opened stores added 0.357 billion yuan in revenue. It is expected that the new store business will continue to climb, further releasing performance.

The company's profit side declined a lot year-on-year in the current period, mainly due to the following three points:

1. 2024Q1-Q3 opened 7 new large-scale stores, with a cumulative construction area of 0.2232 million square meters. The initial opening of each business format in the store required expenses such as start-up expenses and asset depreciation and amortization. At the same time, the new store business was still climbing, and revenue did not reach normal operating conditions, causing the new store to lose nearly 30 million yuan.

2. The company has entered a stage of rapid development. Early investment in various businesses has increased, capital expenditure has increased, and the financial expenses side has increased by nearly 20 million yuan over the same period last year due to additional bank loan funds and a decrease in wealth management revenue.

3. In the same period last year, the company received compensation and disposal revenue of 50.48 million yuan (not tax deducted) from the store demolition in Wuxi, which in turn increased the company's net profit base last year.

Expenses have increased due to the accelerated expansion of heavy assets, putting pressure on the profit side in the short term.

The company's gross margin for 2024 Q1-Q3 was 20.23%, down 4.70 pcts from the same period last year; the gross margin for the third quarter of 2024 was 17.37%, down 7.91 pcts from the same period last year. The 2024Q1-Q3 company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio were 6.54%/5.15%/0.03%/2.58%, respectively, compared with the same period last year, and +2.18/-1.48/ -0.02/+0.91pct, respectively, and 7.76%/5.18%/0.03%/financial expense ratios for the third quarter of 2024, respectively, +2.89/-1.38/-0.03/+1.47pct . The sales expense ratio and financial expense ratio during the period increased compared to the same period last year. The main reason was that the company invested more during the rapid expansion period, which put pressure on the profit side in the short term.

Fumo Hotels is expanding at an accelerated pace and is awaiting gradual implementation to unleash profit flexibility.

The company's Fumao Hotel model adheres to the “cost performance” route to adapt to the current consumer environment. The company is expected to further increase the company's market share in the industry through store replication. The company accelerated its business expansion during the year. Through self-construction of hotels using core location resources in key cities, it is expected to complete the main business format of 10 Fumao hotels by the end of 2024, and reach a mature operating period one after another in 2025. It is expected that after the gradual implementation of the subsequent hotel business, the company is expected to accelerate the release of profit elasticity.

Profit forecasting and investment advice

Based on the 2024 three-quarter report results, we adjusted the forecast for single-store revenue growth and related costs and expenses. The company's net profit for 24-26 is 0.124/0.301/0.42 billion yuan respectively (0.282/0.362/0.452 billion yuan in the previous 24-26 years), corresponding to the current stock price PE of 43/18/13 times, respectively, to maintain a “buy” rating.

Risk warning

The company's store expansion rate fell short of expectations; demand recovery in the restaurant industry fell short of expectations; operating cost control fell short of expectations; risk of changes in raw material prices; risk of market competition; risk of food safety.