The Zhitong Finance App learned that Dongwu Securities released a research report saying that in January-February 2024, zero food and beverage revenue benefited from a year-on-year increase of 12.5% under a high base. Travel expenses during the Qingming holiday in April increased by 12.7% compared to the same period in 2019, faster than the 11.5% increase in the number of travelers. For the first time since 2020, service consumption recovered at an accelerated pace. Judging from the pace of business, the 2023 base is high and low, and is expected to be high around 2024. Looking ahead to the whole year, the bank believes that under the pro-cyclical recovery of leading restaurant companies, there is room for volume and price increases, and operating flexibility is worth looking forward to. Currently, the valuations of some individual stocks have fallen back to historic lows. It is recommended to focus on varieties with a certain degree of growth in performance and a high degree of fulfillment.

Key recommendations: Haidilao (06862), Yihai International (01579), Jiumaojiu (09922).

The views of Soochow Securities are as follows:

Catering industry: The revenue growth rate of restaurant companies above the limit is faster than the overall rate, and the market share is further concentrated.

The revenue of catering companies above the limit was 2.2% CAGR in 2015-2019 (9.7% for the catering industry as a whole) and 9.0% CAGR for the same period in 2019-2023 (3.1% for the overall catering industry). In 2019-23, restaurant companies above the quota benefited from factors such as consumers' shift to large brands with more secure food safety and the greater resilience of large restaurant companies to risks. Faster than the industry as a whole, the market share of leading brands continued to increase.

Catering and supply chain companies: Turbulence stabilizes and dividends increase.

1) Revenue & performance growth, profit margin recovery: Revenue from Dashi Shares/Jiumaojiu/Haidilao increased by more than 30% in 2023, driving profit margin recovery. Helens/ Yihai International/Haidilao's net interest rate to mother in 2023 reached double digits, showing impressive performance. Haidilao/Jiumaojiu/Dashi Share/Yihai International's 2023H2 revenue performance was more impressive, with a month-on-month increase of 19.5%/7.9%/21.6%/35.0% over 2023H1, driving net profit to increase or remain flat month-on-month.

2) Volume and price split, cost decline hedging customer order adjustments: With the rise of cost-effective consumption in 2023H2, most companies chose promotions to attract traffic, compounding the increase in the share of stores in the sinking market. The customer unit price for leading brands in the industry fell 5-10% year on year in 2023. Among them, the unit price of Haidilao in 2023 has dropped below 100 yuan. Taiji enhances cost performance through various packages, small servings of pickled cabbage and fish, etc. The unit price for mainland Chinese customers is 72 yuan (yoy -4%). KFC's customer list is steady. Popular food intake is prioritized over price. Stable customer flow is a prerequisite for ensuring continuous operation and can also better stimulate employees' enthusiasm and motivation to work. In 2023, passenger flow naturally recovered & management improved & promotions increased. Haidilao's 2023H1 and 23H2 turnover rates were 3.3 and 4.2 times respectively. There was a significant month-on-month increase in the second half of 23. Taier mainland stores reached 4.1 times per day in 2023. In 2023, gross margin benefited from multiple factors, such as increased turnover and lower raw material prices, which hedged customer order adjustments well, and achieved a moderate increase over the previous year.

3) Decrease in the proportion of manpower and rent costs: the turnover of various brands has increased, and the single-store model continues to be optimized. Through measures such as optimizing the number of employees in a single store, increasing the proportion of flexible workers, and on-the-job training, Jiumaojiu Restaurant successfully reduced labor costs in 2023 to the best in nearly ten years; Haidilao's share of labor costs in 2023 was reduced by 1.5 pcts compared to 2022. 2) Rent and discounted costs benefit from factors such as preferential property rent, flow optimization, store sinking & small store models, etc., and the revenue ratio continues to decline.

4) Increase dividends to boost shareholder returns: Restaurant companies have abundant cash flow, increase dividend ratios as performance continues to grow, and dividend rate attractiveness increases. For example, Haidilao and Yihai International drastically raised their dividend rates to around 90% in 2023, with dividend ratios of 4.8% and 5.5% respectively. Jiumaojiu expects the future dividend rate to be no less than 40%.

Recommended core views in the food and beverage sector:

The 2024 Spring Sugar channel reported that off-season sales had declined normally. They were optimistic throughout the year. They believed that the sector had downward valuation support and both upward opportunities and space. The basic strategy was a growth target of high dividends+high quality undervalued liquor+sufficient risk release. Targets with sensitive bottom elasticity (good marketing/inventory, recovery is expected to spread faster to reports) and high visibility in the medium term (continued brand potential, leading marketing) are preferred.

Liquors are recommended to evolve in operation and actively sell: Luzhou Laojiao, Shanxi Fenjiu, Gujing Gongjiu, Jinshiyuan, Welcome Gongjiu. It is recommended to pay attention to: Zhenjiu Li Du and Elite. Popular products are optimistic about Qianwei Yang Chef, Yanjin Shop, Jinzai Foods, Yihai International, and Tianwei Foods; those with high dividends: Yili Shares, Shuanghui Development, and Yangyuan Drinks; stable and clear low levels: Yasui Foods, Qiaqia Foods, and Zhongju Hi-Tech. Recommended beers: Tsingtao Brewery, Huarun Beer. Restaurant recommendations: Haidilao, Jiumaojiu.

Risk warning: scenario recovery, business expansion falling short of expectations, product sales falling short of expectations, food safety risks.