An in-line 2022. Pagoda’s 2022 net profits came in in-line with us. Since this is the first result reporting after IPO in Jan this year, we think the event could provide incremental confidence to investors about Pagoda’s business stability, and corporate governance going forward.
　　2023 outlook. Management remained positive for 2023 during analyst briefing and maintained its guidance for the year. We project Pagoda to deliver a 12.1% 3-year revenue CAGR, outgrowing 7.8% of the industry, per Frost & Sullivan. In our view, an accelerating Excellent-grade sales mix, from 9.2% in 2019 to 19.6% in 2024E, drives the outperformance. Alternatively, we envisage the growth will be underpinned by a c.600 store addition per annum along with 7%/9% same-store-sales growth for 2023/24E. Both should aid GPM to expand from 11.6% in 2022 to 12.7% in 2024E.
　　A c.40% dividend payout. Relative to Hongjiu, Pagoda enjoys a shorter cash conversion cycle. Given capex has already peaked-out, the ample cash stream, in our view, should continue to sustain a c.40% dividend payout to shareholders.
　　Earnings change. Given an in-line result, we largely maintain our 2023- 24E forecasts despite any housekeeping changes from the actual 2022 results announcement.
　　Valuation. Our TP is based on an unchanged 23.0x end-23E P/E which still benchmarks to the average valuation of its domestic and global peers. In our view, our methodology is more appropriate to reflect 1) Pagoda’s fair value given a short listing history since IPO in Jan 2023, and 2) the financial comparability of each peer group.