Haidilao’s 1H24 revenue increased by 14% YoY to Rmb21.5bn, core operating profit increased by 13% YoY, and net profit decreased by 10% YoY to Rmb2bn, primarily due to the impact of changes in net foreign exchange gain and loss and the termination of the additional value-added tax deduction preferential policy in mainland China. We maintain our 2024E EPS forecast of Rmb0.89, 2025E forecast of Rmb0.97 and 2026E forecast of Rmb1.03. Considering the consumption sentiment, we lower our valuation and lower the target price from HK$25.4 to HK$17, with 39% upside, we maintain a Buy rating.
　　Steady store opening and increased table turnover rate. In 1H24, Haidilao opened 11 new restaurants and closed 43 stores, bringing the total number of stores to 1,343, of which 1,320 located in mainland China and 23 located in China’s Hong Kong, Macao and Taiwan region. We expect the growth rate of new stores in 2024 will be in mid-single digits. The table turnover rate increased from 3.3x in 1H23 to 4.2x in 1H24.
　　Franchise stores and new brands will lead to new growth curve. The company launched the franchise model in March and one franchise store was opened in 1H24. We expect the number to increase in 2H24. Meanwhile, the company initiated the "Pomegranate Plan" in 1H24, aiming to encourage the incubation and development of more new catering brands. The company had a total of five innovation and entrepreneurship projects in operation in 1H24, such as “YEAH QING BBQ”, “XIAOHAI HUOGUO”, etc., covering a wider price segments and more consumers.
　　Interim dividend. Haidilao declared an interim dividend of Rmb0.358 or HK$0.391 per share, with a payout ratio of 94%, and a dividend yield ratio of 3% based on the closing price of HK$12.26 on August 27.
　　Maintain Buy. We are optimistic about the company's table turnover rate which outperforms its peers and the increase in shareholder returns. We maintain our Buy rating.
　　Risks: Table turnover rate may fall short of expectations. Rising personnel costs could lead to decline in profit margin.