20210827-招银国际-奈雪的茶-02150.HK-Structural_improvements_are_still_on_track_12页_1mb

Nayuki Holdings Limited (2150 HK) Equity Research Summary

Core Content

Nayuki Holdings Limited (2150 HK) is a teahouse brand that has shown structural improvements and is currently rated as BUY with a target price of HK$17.10. This is based on a DCF model with assumptions of a 34% sales CAGR from FY20 to FY25E, a 56% EBITDA CAGR, and a terminal growth rate of 3.5%. The analysis highlights the company's strong performance and growth potential despite short-term challenges.

Main Points

• Strong 1H21 Results:

  • Sales grew by 80% YoY to RMB 2.1bn.
  • Adjusted net profit reached RMB 48mn (adj. NPM at 2.3%), compared to RMB -62mn (adj. NPM at -5.3%) in 1H19.
  • Sales growth was driven by store expansions and successful product launches, such as the emblic/油柑 series.
  • Improved gross profit margin due to a higher sales mix from classic products and reduced sourcing costs.

• Quick Recovery from Jul-Aug 2021 Challenges:

  • Sales were disrupted by the outbreak of the pandemic but rebounded in early August 2021.
  • Hygiene issues had a short-lived impact, and store traffic normalized quickly.
  • No long-term damage to brand equity was observed.

• Store Expansion Target Raised:

  • Management is confident in exceeding the FY21E store target of 300.
  • The forecast was revised to 331 stores, based on:
    • Easier opening of PRO stores compared to regular stores.
    • All locations and contracts identified and signed in 1H21.

• PRO Store Performance:

  • Type 1 PRO stores have a high OP margin of 21.7% vs 19.9% for regular stores.
  • Type 2 PRO stores have a lower OP margin of 15.3%, but breakeven sales are lower at RMB 200-300K per month.
  • Management expects further improvement in margins as the network expands.

• Margin Improvement on Track:

  • Nayuki's restaurant-level OP margin rose to 19.2% in 1H21, up from 5.8% / 16.3% in 1H20/2H20.
  • Further improvements are expected due to:
    • Ramp-up of stores in SH and BJ, which are still developing.
    • Leveraging of staff costs and greater automation adoption.

• Valuation:

  • Current valuation is ~2.3x FY22E P/S, which is attractive compared to the industry average of 2.3x.
  • Adjusted P/E ratio is 39x, vs China peers' average of 26x.
  • The DCF model implies a ~3.6x P/S for FY22E, based on faster-than-industry sales CAGR.

Key Information

• Earnings Summary:

  • Revenue grew from RMB 2,502mn (FY19A) to RMB 4,975mn (FY21E), with a ~62.7% YoY growth.
  • Adjusted net profit increased from RMB 26mn (FY19A) to RMB 122mn (FY21E), with a ~370% YoY growth.
  • Adjusted EPS rose from RMB 0.069 (FY19A) to RMB 0.071 (FY21E), with a ~3.5% YoY growth.

• Earnings Revision:

  • CMBIS revised its FY21E/22E/23E net profit estimates up by 4%/2%/4%, respectively.
  • The DCF-based valuation was updated, leading to a revised target price of HK$17.10.

• Sales by Brand and Segment:

  • Nayuki is the main brand, with ~64.8% of total sales in FY21E.
  • Tai Gai and others contributed ~17.1% and ~18.9%, respectively.
  • Sales growth by city tiers:
    • Tier 1 cities: 51.0% (FY21E YoY).
    • New Tier 1 cities: 72.0% (FY21E YoY).
    • Tier 2 cities: 73.3% (FY21E YoY).
    • Other cities: 92.8% (FY21E YoY).

• Sales by Channel:

  • In-store cashier & others: RMB 1,745mn (FY21E).
  • WeChat/Alipay & Nayuki app: RMB 317mn (FY21E).
  • 3rd party online ordering platforms: RMB 439mn (FY21E).
  • The online channels showed significant growth, especially WeChat/Alipay & app.

• DCF Valuation Assumptions:

  • WACC is assumed at 8.1%, lower than international peers (10.1%) and Greater China peers (13.6%).
  • Cost of debt is 3.0%, risk premium is 10.0%, and Beta is 0.70.
  • Cost of equity is 10.0%, and debt/equity ratio is 25%/75%.
  • Terminal growth rate is 3.5%.

• Market Cap and Share Performance:

  • Market cap: HK$18,935mn.
  • Shareholding structure:
    • Mr. Zhao Lin & Ms. Peng Xin: 56.98%.
    • Tiantu Capital: 11.09%.
    • Employee incentive platform: 5.35%.
    • PAGAC Nebula: 5.28%.
    • Shenzhen Capital Group: 2.82%.
    • Free Float: 18.47%.
  • Share performance over 1-month: -25.7% (absolute), -21.0% (relative).

• Auditor: KPMG.

• Related Reports: The report is dated August 10, 2021, and highlights Nayuki as a prestigious teahouse brand.

Conclusion

Nayuki Holdings Limited has demonstrated strong recovery and growth potential, with robust sales and margin improvements. The company is expected to exceed its store targets, and the DCF model supports a revised target price of HK$17.10. Despite short-term disruptions, the long-term growth story remains intact, with attractive valuations and positive earnings revisions.