New store openings to drive topline growth
- JMJ announced that its FY23F revenue rose 49.4% yoy to c.Rmb5,985.9m and net profit soared 812.8% yoy to c.Rmb450m, largely in line with our estimates.
- In FY24F, JMJ plans to open: 1) 80-100 Taier stores, of which 15-20 stores would be overseas, and 2) 35-40 Song Hotpot stores.
- On 3 Feb 2024, JMJ announced the company will open the franchise cooperation for Taier stores to facilitate brand and store expansion.
- We reiterate our Add call, with a lower DCF-based TP of HK$15.
FY23F headline numbers largely in line
On 22 Feb 2024, Jiumaojiu (JMJ) announced that its FY23F revenue rose 49.4% yoy to c.Rmb5,985.9m (slightly above our estimate) and net profit soared 812.8% yoy to c.Rmb450m in its preliminary results, largely in line with our estimates. The strong net profit growth was mainly driven by: 1) expansion of its store network, with the total number of restaurants rising from 556 stores to 726 stores (+30.6% yoy) in FY23F, 2) SSSG driven by China’s reopening policy and offline catering demand recovery, and 3) improved operating efficiency. According to the announcement, 2H23F revenue rose 47% yoy to Rmb3,106.5m, while JMJ’s bottomline turned from a net loss of Rmb8.4m in 2H22 to a net profit of Rmb227.8m in 2H23F. We expect the FY23F revenue exceeded FY19’s by 123%, while net profit surpassed FY19’s by 174%, mainly due to store network expansion and operating efficiency improvement.
Maintain strong new store opening plan in FY24F
JMJ closed 6 underperforming Taier stores and opened 134 new Taier stores in FY23F (of which 12 are located overseas); this was faster than management’s previous guidance of 120 new Taier stores in FY23F. Meanwhile, JMJ also opened 35 new Song Hotpot stores in FY23F. JMJ plans to open 80-100 Taier stores (including 15-20 stores overseas) and 35-40 Song Hotpot stores in FY24F. The company sees good growth potential in the overseas market and in further increasing store density in higher tier cities for Song Hotpot. For FY24F, we forecast revenue to rise 30.5% yoy to Rmb7,813m and net profit to rise 38.4% yoy to Rmb623m, driven by new store openings and operating margin expansion. We expect OPM to widen 0.3% pt yoy to 13% in FY24F due to lower raw material costs and improved operating efficiency.
To open Taier franchise stores for lower tier cities
JMJ announced on 3 Feb 2024 that it will open franchise cooperation for Taier stores in: 1) Xinjiang, Tibet and Taiwan, 2) domestic transportation hubs, like airports and railway stations, and 3) overseas markets in Australia and New Zealand. Management said it has received good feedback, thus far, from franchise partners. We view this new strategy as positive for long-term growth, since the main purpose includes: 1) facilitating brand and store expansion, 2) capitalising on the franchise partners’ local knowledge, relationship and capital, and 3) reduce capex required by JMJ.
Reiterate Add with a lower DCF-based TP of HK$15
We largely maintain our FY23F EPS forecast and reduce our FY24F-25F EPS forecasts by 4.8-7.1%, as we expect labour cost to rise along with JMJ’s aggressive new store opening plan. We therefore reduce our DCF-based TP to HK$15 (WACC: 17.6%, terminal growth rate: 3%). We reiterate our Add rating as we believe the net new opening stores would drive topline growth. Re-rating catalysts include stronger SSSG and margin expansion in 1Q24F. Key downside risks are: 1) weaker macro dampening catering demand, and 2) higher labour and rental expenses ratio affecting margins.
