20230330-招银国际-百果园集团-02411.HK-An_ensuring_2022__and_we_remain_positive_for_2023_4页_783kb

Shenzhen Pagoda (2411 HK) Summary

Core Content

Shenzhen Pagoda (2411 HK) reported in-line net profits for 2022, marking its first result since the IPO in January 2023. This result is expected to boost investor confidence in the company's business stability and corporate governance. The firm remains optimistic about its 2023 performance, with management maintaining its guidance for the year.

2023 Outlook

• Revenue Growth: Projected to grow at a 3-year CAGR of 12.1%, outperforming the industry's 7.8%.
• Growth Drivers:
  • Accelerating Excellent-grade sales mix, expected to rise from 9.2% in 2019 to 19.6% in 2024E.
  • Annual store additions of approximately 600, alongside 7% and 9% same-store-sales growth for 2023 and 2024E respectively.
• Gross Margin: Expected to expand from 11.6% in 2022 to 12.7% in 2024E.

Dividend Policy

• Dividend Payout: Approximately 40% of earnings, supported by a shorter cash conversion cycle compared to Hongjiu.
• Dividend per Share (DPS): Expected to be around RMB 0.1 in 2023 and 2024E.

Earnings Summary

Valuation

• Target Price (TP): HK$7.7 (previous TP: HK$7.9).
• Price Target Relative to Current Price: 26.2% upside.
• Valuation Multiple: Based on an unchanged 23.0x end-2023 P/E, benchmarking against domestic and global peers.

Financial Highlights

Income Statement

• Revenue: Expected to grow from RMB 8,854 mn in FY20A to RMB 14,482 mn in FY24E.
• Gross Profit: From RMB 807 mn in FY20A to RMB 1,846 mn in FY24E.
• EBIT: From RMB 148 mn in FY20A to RMB 686 mn in FY24E.
• Net Profit: From RMB 49 mn in FY20A to RMB 575 mn in FY24E.

Cash Flow Summary

• Net Cash from Operating Activities: Expected to increase from RMB 298 mn in FY20A to RMB 509 mn in FY24E.
• Net Cash from Investing Activities: Negative, with Capex and investments expected to remain around RMB -105 mn in 2023 and 2024E.
• Net Cash from Financing Activities: Expected to be positive, with dividend payments increasing from RMB -60 mn in 2022 to RMB -188 mn in 2024E.
• Net Change in Cash: From RMB 137 mn in FY20A to RMB 901 mn in FY22E, and RMB 86 mn in FY24E.

Balance Sheet

• Total Equity: From RMB 2,529 mn in FY20A to RMB 3,693 mn in FY24E.
• Share Capital: Remains at RMB 1,500 mn throughout the periods.
• Reserves: Expected to grow from RMB 955 mn in FY20A to RMB 2,134 mn in FY24E.
• Current Ratio: Improved from 0.1 in FY20A to 0.3 in FY24E.
• Net Debt to Equity: Transitioned to net cash in 2022 and remains net cash in 2023 and 2024E.

Key Ratios

• Gross Margin: From 9.1% in FY20A to 12.7% in FY24E.
• EBIT Margin: From 1.7% in FY20A to 4.7% in FY24E.
• Pre-tax Margin: From 0.8% in FY20A to 4.6% in FY24E.
• Net Margin: From 0.6% in FY20A to 4.0% in FY24E.
• Effective Tax Rate: From 36.3% in FY20A to 14.6% in FY24E.
• ROE: From 2.0% in FY20A to 15.8% in FY24E.
• ROA: From 0.9% in FY20A to 7.9% in FY24E.
• ROIC: From 1.0% in FY20A to 9.5% in FY24E.

Investment Recommendation

• Ratings: BUY (Maintain)
• Target Price: HK$7.7
• Current Price: HK$6.1
• Potential Return: Over 15% in the next 12 months

Stock Data

• Market Cap (HK$ mn): 9,690
• 52-Week High/Low (HK$): 7.1 / 5.5

Shareholding Structure

• Wang Yonghua: 14.93%
• CICC: 13.26%
• Hong Yuan Shang Go: 10.97%

Share Performance

• 1-Month: -3.2%
• 3-Months: n.a
• 6-Months: n.a

Analyst Certification & Disclosures

• The analyst certifies that the views expressed reflect personal opinions and that there are no conflicts of interest.
• CMBIGM and its affiliates have investment banking relationships with the issuers covered in this report.
• The report is not an offer or solicitation to buy/sell securities and is for informational purposes only.
• CMBIGM is not a registered broker-dealer in the U.S., and the report is intended solely for major U.S. institutional investors.
• In the U.K. and Singapore, the report is subject to specific legal restrictions and is only provided to certain categories of investors.

Conclusion

Shenzhen Pagoda is expected to deliver consistent revenue and profit growth, driven by an increasing Excellent-grade sales mix and store expansion. The company maintains a stable dividend policy, supported by strong cash flow. Despite a relatively low valuation multiple, the firm's improving margins and ROE suggest a positive outlook for 2023 and beyond. The current BUY recommendation is based on the potential for over 15% returns in the next 12 months.