Core Viewpoint - The article discusses the strategic shift of Laoxiangji from a direct-operated model to a franchise model, highlighting its financial performance and the competitive landscape in the Chinese fast food industry, particularly in the context of its upcoming IPO [1][17]. Financial Data - Laoxiangji's projected revenue for 2024 is 6.288 billion RMB, with a net profit of 409 million RMB [1][15]. - The revenue from independent franchise stores has surpassed 51.1%, indicating a significant shift in the revenue model [1][5]. - The number of direct-operated stores decreased by 3, while franchise stores increased by 88, reflecting a strategic pivot towards franchising [1][2]. Industry Landscape - The Chinese fast food market has a low chain rate of 32.5%, significantly lower than Western fast food's 67.9%, due to challenges in standardization and supply chain complexity [8][9]. - Laoxiangji holds a dominant position in the East China market, with 86% of its stores located in this region, particularly in Anhui [5][11]. - The competitive landscape includes major players like Laoxiangji, Laoniangjiao, and Xiangcunji, with emerging brands like Yuyouzaijiyu and Micunbanfan posing significant challenges [11][13]. Capital Pathways - The trend of IPOs among Chinese fast food companies indicates a shift from regional competition to capital competition, driven by rising operational costs [14][17]. - Laoxiangji aims to become the first publicly listed Chinese fast food company, with an estimated valuation between 15 billion to 20 billion RMB based on its financial performance [15][16]. - The investor structure may include institutional investors seeking stability and retail investors chasing growth, necessitating a balanced approach in marketing and operational transparency [16][17].

Industry Overview - The tavern industry has not yet recovered, with competition significantly higher than in 2019. The chain development process is slow. The "Tavern Development Report 2025" indicates that the national tavern market size is projected to reach 112 billion yuan in 2024, a year-on-year increase of 7.7%, but still below the 2019 level. It is expected to grow to 117.5 billion yuan in 2025, with a year-on-year increase of 4.9% [1] - As of March 2025, the number of tavern enterprises in the country exceeds 38,000, a year-on-year increase of 2.6%, and a 139.6% increase compared to 2019, indicating intensified competition amid weak demand [1] - The chain rate of taverns remains low, with most brands having five or fewer stores, accounting for 57.9%, while brands with over 100 stores only account for 5.1% [1] Company Performance - Helen's direct sales have rapidly declined, and the transition to a franchise model is still ongoing. In 2024, the company achieved revenue of 752 million yuan, a year-on-year decrease of 37.76%, and reported a net loss of 77.976 million yuan, reversing from a net profit of 180 million yuan last year. The adjusted net profit was 101 million yuan, down 65.5% year-on-year [2] - The decline in performance is attributed to the platform transformation leading to a drop in direct sales revenue. Since 2023, the company has significantly closed direct stores, with 511 stores shut down by March 19, 2025. The "Hi Beer Partner" franchise model has expanded to 424 stores, with a total of 499 signed agreements, while the number of licensed cooperative stores decreased from 92 to 42, with over 70% of the total 579 stores being franchise stores [2] - The company is in a transitional phase from direct sales to a franchise model, with its profit model still being refined. The rapid reduction of direct stores and the immature franchise system raise concerns about its cyclical resilience. The efficiency of store operations and product structure are still being adjusted, and the ability to enhance single-store repurchase rates and efficiency through multi-scenario combinations and mechanism optimization will be key to long-term performance [2] Profit Forecast and Investment Recommendation - The company forecasts earnings per share for 2025-2027 to be 0.05, 0.06, and 0.09 yuan respectively, down from the previous forecast of 0.21 yuan for 2025, mainly due to the rapid closure of direct stores and the increase in franchise proportion, leading to a decline in overall single-store profit contribution [2] - Based on comparable companies, the reasonable valuation level for the company is set at a 29 times price-to-earnings ratio for 2025, corresponding to a target price of 1.51 HKD (with 1 HKD = 0.9138 RMB), and the rating has been adjusted to "neutral" [2]