下载格隆汇APP
下载诊股宝App
下载汇路演APP
社区
会员
机构：中金公司
研究员：Wendan WANG/Wenbo CHEN/Yunpeng FANG
Zhou Hei Ya announced its 2021 results: Revenue fell 9.9% from 2019 （the year before COVID-19） to Rmb2.87bn, and attributable net profit declined 16.0% from 2019 to Rmb342mn. In 2H21, revenue fell 9.2% from 2H19 to Rmb1.42bn, and attributable net profit declined 38.5% from 2H19 to Rmb113mn, in line with its preannouncement. As non-recurring items were a relatively large portion of the firm’s total profits, the firm’s core profit missed market expectations on lingering impact of the COVID-19 resurgence.
Trends to watch Store expansion, diversification of distribution channels and product portfolio well underway; COVID-19 resurgence weighed on store productivity. Zhou Hei Ya net opened 85 self-operated stores and 426 franchise stores in 2H21, bringing the full-year net store openings to 1,246 and 1,535. The firm has accelerated nationwide expansion on the back of the franchise model, entering 116 new cities in 2021. We also note that its stores are more evenly distributed across the country. Overall, the firm’s store expansion is advancing smoothly. Excluding impact of the COVID-19 resurgence on store relocation, the closure rate of the firm’s franchise stores remains at a low single digit, which we think shows the firm’s solid business operations. The firm has continued to advance its channel and product diversification strategies. Revenue from its internet O&O channel rose 23.5% YoY, accounting for 32% of the firm’s total revenue in 2021.
New products generated sales of over Rmb500mn in 2021, with sales contribution at 18%. Since 3Q21, the COVID-19 resurgence in some regions in China has weighed on the firm’s store operations. The annualized revenue per sqm in Zhou Hei Ya's self-operated and franchise stores came under pressure YoY and HoH in 2H21, dragging down the firm’s overall revenue growth.
Cost pressure and COVID-19 resurgence weighed on 2H21 net margin. The firm’s gross margin declined 2.5ppt HoH in 2H21, mainly due to rising raw material prices and relatively low gross margin of some products. Meanwhile, store productivity missed expectations amid the COVID-19 headwinds. Operating profit margins of the firm’s self-operated and franchise stores both faced downward pressure YoY and HoH in 2H21, mainly due to relatively fixed store rental fees and labor costs and increased subsidies paid to franchisees. In addition, the increase in G&A expense ratio resulting from a growing number of store managers also weighed on the firm’s net margin in 2H21.
Nationwide expansion of community-based stores likely to start; near-term earnings face downward pressure amid COVID-19 resurgence in 2022. Since October 2021, Zhou Hei Ya has propelled the pilot launch of 22 community-based stores （i.e., stores located in residential communities） in Changsha, Hefei, Guangzhou, and Shenzhen.
Considering the expansion of community-based stores outside Hubei province has paid off, we expect the firm to facilitate the nationwide expansion in 2022. As community-based stores require less investment and exhibit stronger resilience amid COVID-19 headwinds, we think the firm’s expansion of community-based stores could enhance its risk mitigation capability. Our grassroots survey shows that the firm’s recent store expansion has progressed smoothly. We expect Zhou Hei Ya to hit its target of opening 1,000 community-based stores in 2022. However, we think that the firm’s store operations might be negatively affected by the COVID-19 resurgence in some regions in 2022, weighing on its operating results in the short term.
Financials and valuation
The stock is trading at 30x 2022e and 18x 2023e P/E. Given the lingering impact of COVID-19 resurgence, we lower our 2022 and 2023 earnings forecasts 38% and 30% to Rmb283mn and Rmb484mn. We maintain OUTPERFORM and cut our TP by 20% to HK$5.2 （37x 2022e and 21x 2023e P/E）， offering 20% upside.
Risks
Uncertainty due to COVID-19 resurgence in China; store expansion disappoints; intensifying competition; surging costs.