Description of the event

In the first three quarters of 2024, the company achieved operating income of 4.103 billion yuan, +5.86% year on year; realized net profit of 0.448 billion yuan, -8.87% year over year; realized net profit after deduction of 0.434 billion yuan, or -8.54% year on year.

With 2024Q3, the company achieved operating income of 2.191 billion yuan, +2.27% year over year; realized net profit of 0.39 billion yuan, -5.35% year over year; realized net profit without deduction of 0.384 billion yuan, or -4.45% year on year.

Incident comments

At the industry level, the growth rate of Social Zero Catering is slowing down, and the pressure on catering units above the limit is even greater. From July to September 2024, the revenue of social zero catering increased by 3.0%/3.3%/3.1%, respectively, and the growth rate declined significantly (April to April increased 4.4%/5.0%/5.4%, respectively). The pressure on the growth rate of food and beverage revenue per unit above the limit was even greater. Among them, July showed the first negative growth since 2023, and in July-September, the year-on-year difference was -0.7%/+0.4%/+0.7% year-on-year, respectively. There was also a decline from month to month (the revenue of social zero catering units above the monthly limit remained flat year-on-year, respectively) 4.0%). Guangdong's food and beverage revenue increased 2.9% year-on-year in the first three quarters.

At the company level, revenue continues to grow, and short-term cost-side pressure is high. The company's revenue in the first three quarters of 2024 and Q3 both achieved positive year-on-year growth, while profit declined year-on-year, or was related to the large number of newly opened restaurants and higher expenses for renovation and start-up costs. Furthermore, in a more competitive market environment in 2024, in order to promote sales, the company's investment in market channels and other expenses increased, compounded by a downgrade in consumption and an increase in demand for “cost performance”, which together put pressure on the company's profit side. Looking ahead to the future market, as competition in the industry intensifies, the clearance of small brands accelerates, big brands are more resilient to risks, and the competitive pattern of the industry is expected to improve; the company's opening of new stores has gone through a climbing period, which is expected to ease the pressure on the company's profits.

At the level of profitability, operating costs increased, gross margin was under pressure, and expense ratios declined year-on-year. The gross margin/net margin of the 2024Q3 company was 39.49%/18.33%, respectively. The year-on-year decline in gross margin was mainly due to a 7.31% year-on-year increase in operating costs, which was higher than the revenue growth rate. The relatively low decline in net interest rate mainly benefited from the year-on-year improvement in the company's overall expense ratio. 2024Q3 had a year-on-year improvement in the company's overall expense ratio of 14.66%, -1.60pct year on year, of which sales expense rate/management expense rate/financial expense ratio/R&D expense ratio were 7.28%/6.68% /-0.45, respectively %/ 1.15%, -0.87/-0.15/-0.20/-0.38pct, year-on-year, respectively.

Investment advice and profit forecast: I am optimistic that the company will adhere to the strategy of “strong catering brand, food create scale” and make every effort to build a “big restaurant, big food, big brand” industry pattern. On the catering side, expand new stores, enter new markets, and go to the whole country to enhance brand awareness; on the food side, take a multi-pronged approach of product innovation, domestic and foreign channel expansion, diversified marketing, etc., and move towards the long-term goal of “creating a famous brand with 100 years of experience and building a world-class food group”. It is estimated that in 2024-2026, net profit due to mother will be 0.554/0.645/0.745 billion, respectively, and PE corresponding to the current stock price will be 16/14/12X, respectively, maintaining a “buy” rating.

Risk warning

1. The consumption environment continues to be sluggish;

2. Increased channel competition;

3. Newly opened restaurants have a long climbing period.