Soochow Securities Co., Ltd.: Initiates "Buy" rating for GREEN TEA GROUP, plans to further expand restaurant network in the future

According to the Zhitong Finance APP, Soochow Securities released a research report stating that considering the remaining store penetration space for GREEN TEA GROUP (06831) and the potential for new store formats, the firm believes that the current valuation still offers cost-effectiveness. They initiate coverage with a "Buy" rating. The firm expects the company's revenue for 2025-2027 to be 4.801 billion, 5.967 billion, and 7.253 billion yuan, with year-on-year growth rates of 25.09%, 24.28%, and 21.54%, respectively; the net profit attributable to the parent company for 2025-2027 is expected to be 503 million, 632 million, and 811 million yuan, with year-on-year growth rates of 43.70%, 25.64%, and 28.34%. The main points from Soochow Securities are as follows: West Lake Feast, Longjing Tea Fragrance, starting from Hangzhou, GREEN TEA restaurants are going nationwide GREEN TEA GROUP was founded in Hangzhou, Zhejiang, and is a leading domestic chain enterprise focused on fusion cuisine in the casual Chinese dining sector. By the end of 2024, the company will have a total of 465 restaurants covering 141 cities, achieving an annual revenue of 3.838 billion yuan (as of the first half of 2025, the number of stores further increased to 502). In 2024, GREEN TEA GROUP ranked third in terms of the number of restaurants and fourth in terms of revenue among casual Chinese restaurant brands in mainland China. Looking ahead, the company plans to further extend its restaurant network through strategies such as regional densification, market penetration, and scenic area store layouts. Casual Chinese dining is thriving, and GREEN TEA GROUP is riding the wave The mainland dining market has a large existing scale, growing from 3.9527 trillion yuan in 2020 to 5.5718 trillion yuan in 2024, with a CAGR of 8.96%, still showing steady growth potential. The mainland dining market is primarily composed of Chinese restaurants, with a retail sales share of 55.13% in 2024. Chain casual Chinese dining has further advantages: (1) From 2019 to 2024, the CAGR of the chain/non-chain dining market was 13.60%/7.72%, with chain dining growing faster; (2) From 2020 to 2024, the market size of casual Chinese dining grew from 351.3 billion yuan to 534.7 billion yuan, with a CAGR of 11.1%, showing faster growth in comparison. Fusion cuisine has a broader audience, with outstanding cost-effectiveness With numerous brands, GREEN TEA stands out due to its universal fusion cuisine, cost-effective dishes, and uniquely designed dining environment: (1) Unique positioning of fusion cuisine: GREEN TEA organically combines ingredients, cooking techniques, and seasoning methods from different regions and cultures, making it more universal. In 2024, the revenue share of GREEN TEA's existing stores in East China, Guangdong Province, North China, and other regions is 33%, 18%, 12%, and 37%, respectively, with a more even distribution and significantly more covered cities in comparison; (2) Outstanding cost-effectiveness: In 2024, GREEN TEA's per capita consumption is 50-70 yuan, compared to 80-90/60-70/70-80/60-70 yuan for Xibei/Xiaocaiyuan/Tai Er Suancaiyu/Waipojia, showing a more significant cost-effectiveness advantage; (3) Store decoration incorporates classic elements of Chinese traditional culture and natural landscapes, creating a unique dining experience Accelerating Store Expansion, Optimizing Supply Chain, Improvement in Same-Store Performance Expected Through regional encryption, downward extension, and layout in scenic areas, the company plans to open 150/200/213 new stores in 2025-2027, respectively, including: (1) during this period, it is planned to open 159/42/50/284/28 new stores in East China/Guangdong/North China/other regions/overseas; (2) during this period, it is planned to open 146/123/265 new stores in first-tier and new first-tier/second-tier/third-tier and below cities; (3) it plans to add 17 new restaurants in tourist attractions to enhance brand image. In addition, the company is actively enhancing its dish research and development capabilities (with a total of 172/168/203 new products launched from 2022-2024, significantly accelerating year-on-year), increasing takeout revenue (with a CAGR of 35% for takeout revenue from 2022-2024), building its own central kitchen, optimizing the supply chain, and improvement in same-store performance is expected. Risk Warning: Intensified competition in the catering market, rising raw material costs, risk of brand aging and customer loss