20230721-招银国际-奈雪的茶-02150.HK-Franchising_can_be_the_new_recipe_for_success_11页_1mb

Summary of Nayuki (2150HK) Company Update and Recommendations

• Maintain Buy Recommendation: The investment bank maintains a Buy rating for Nayuki, raising the target price to HK$875 from HK$738, a 45.3% increase. This is based on a discounted cash flow (DCF) model with a 15.8% weighted average cost of capital (WACC), implying a forward price-to-earnings (P/E) of ~23x for the fiscal year 2024 estimate.

• Franchising Program Launch: Nayuki officially launched its franchising program in approximately 300 cities (mostly tier 3-4) on July 20, 2023, following Heytea's lead earlier in the year. Franchisees must have at least two years of catering experience and must be store managers. The program aims to capture untapped markets quickly and offers a cash payback period of 1-2 years for franchisees.

• Positive Outlook: The analysis is positive due to: (1) Competition response to Heytea's expansion, as Nayuki seeks to gain market share in a slowing environment (Heytea now has over 2,000 stores). (2) Suitability of Nayuki's existing infrastructure, including automation and standardization, enabling efficient scaling. (3) Attractive returns for franchisees, with an estimated initial investment recovery of around 19 months (based on RMB 1 million investment and 15% store-level operating margin).

• Valuation: The DCF model projects significant net profit growth, with revised forecasts for FY23E and FY24E due to better-than-expected operating leverage and cost reductions. The current implied P/E is 16x for FY24E, while the target price implies a 23x P/E, which is higher than the industry average of 15x.

• Risk Factors: Despite the positive outlook, there is caution on NP margin improvement, and the report notes high revenue growth and competition from other premium tea brands.

• Financial Highlights: Revenue and SSSG (same-store same-day) have shown signs of improvement, with a focus on expanding store numbers and digital channels. Franchise terms and requirements are sophisticated, aligning with industry standards for franchising. Long-term assumptions include 28% sales CAGR and a terminal growth rate of 2%.

Disclaimer: The full report includes analyst certification, disclosures, and sensitivity analysis, emphasizing risks in securities transactions and the potential for market fluctuations.