Dashi Shares, which is about to enter the era of a thousand stores, will increase revenue and profit (01405) - Domino China once again unleashes liquidity

Since late September, the Hong Kong stock food and beverage sector has rebounded significantly, and the performance of many leading restaurant brands has been growing strongly. Dashi Co., Ltd. (01405) - Domino's China is one of Domino's Pizza's exclusive general franchisees in mainland China, Hong Kong SAR, and Macau SAR of China. Dashi Co., Ltd. (01405) recorded revenue of RMB 2.04 billion and a year-on-year growth rate of 48.3%, outperforming the market; net profit to mother also turned a loss into a profit, making an overall profit. The number of offline stores continued to expand in the third quarter, and the number of stores is about to exceed 1,000.

With the gradual recovery of consumer confidence, the medium- to long-term logic of the catering industry is still clear, and improvements in the liquidity environment and rapid recovery in market sentiment are also expected to drive the catering sector to take the lead in recovering. As a popular pizza chain brand in the world, Domino's has long been deeply entrenched in the hearts of the people with its promise of “30 minutes must be delivered, get a free pizza voucher after overtime” and its brand image that is delicious, high quality, and has a wide variety of roll cake toppings. The impressive performance data and increasing brand voice among consumers all indicate that the pizza brand is entering a new stage of growth.

The number of stores is growing steadily, and the “4D” strategic potential is being released at an accelerated pace

In recent years, with the rise in economic standards and changes in consumer attitudes, especially the younger generation's acceptance of Western food, the image of pizza in the minds of consumers has changed from imported Western food to affordable, convenient, and flavourful mass food. As the penetration rate of the pizza category gradually increases, the pizza market space will have great potential in the future, and the vast Chinese market is becoming a “must-compete place” for many brands.

According to the business overview for the third quarter of 2024 (hereinafter referred to as the “Business Overview”) released by Dashi Co., Ltd., as of September 30, 2024, Dashi has 978 stores, covering 33 domestic cities, of which 64 new stores were opened in the third quarter alone. The rapid expansion of offline stores has brought strong growth impetus to the company's performance.

Adhering to the “go deeper and expand” expansion strategy, Domino has focused its strategic vision on the huge potential markets of new first-tier and second-tier cities. Every time the company opened new stores, there was a popular scene where consumers lined up long lines, frequently setting and breaking multiple single-day sales records for single stores around the world. According to the Zhitong Finance App, Domino's Chinese stores occupied 28 seats in the top 30 sales rankings of over 20,000 stores worldwide, and has successfully verified the positive contribution of this market strategy to performance.

At the same time, the profitability of the company's single store also increased steadily, and the average daily sales of a single store reached a year-on-year growth rate of 10.1% in the first half of the year. As of the third quarter of this year, the company has achieved positive same-store sales growth (SSSG) for 29 consecutive quarters.

Up to now, the company's net number of new stores, number of stores under construction, and number of contracted stores have reached the total annual opening target of nearly 100%. Following this growth trend, the company is expected to reach the milestone of 1,000 stores in the fourth quarter of this year, and will open about 300 to 350 new stores each in 2025 and 2026, quickly seizing more market share.

It is worth noting that behind Dashi's outstanding fundamentals, it is inseparable from the company's long-term adherence to and implementation of the “4D” strategy.

According to the Zhitong Finance App, Dashi Co., Ltd.'s unique “4D” strategy is high-quality store development (Development), delicious pizza at a high price ratio (Delicious Pizza at Value), efficient delivery experience (Delivery), and digital capabilities (Digital).

According to public information, Domino continues to develop and innovate new products every 6 to 8 weeks, with more than 30 pizza SKUs (excluding packages), more than 20 types of optional base for each pizza, and more than 10 additional ingredients, providing consumers with diversified and personalized taste customization options. On various social platforms, there is no shortage of consumers sharing Domino's pizza roll reviews and strategies for different flavors. “Tap water” promotion has kept the brand's popularity high.

In line with a new generation of consumer trends seeking individuality, creativity, and freshness, Domino's has been actively launching new products such as French Burgundy style beef pizza, Golden Cat Mountain Durian Duoduo Pizza, Korean pear sauce plum meat pizza, and a number of new products such as the new black gold honey sauce char siu roll, coconut and pumpkin double layer cake base, and “Volcano” cake base, which have repeatedly deepened consumers' brand awareness in specific cities.

According to the business overview, as of September 30, the number of members of the Domino membership program “Talent Club” reached 21.7 million, a significant increase over the same period last year. The cost-effective membership system and points system continue to enhance user stickiness. In the past 12 months, 11 million new users placed their first order through the official online ordering channel. Actively innovative brands and user strategies have actually completed the conversion of new customers.

In addition to being generally positive, a number of research institutes have also expressed an optimistic attitude towards Dashi Co., Ltd. As Guojin Securities pointed out, the company's expansion rate exceeded expectations, and the same stores bucked the trend, reflecting strong product strength and brand potential; Zhongtai Securities expects that store expansion and increased daily sales will still increase profit margin performance quarter by quarter. Affected by liquidity, the company's intrinsic value is undervalued by the market.

Since entering the Hong Kong stock market in March 2023, the stock price of Dashi shares has been rising. The maximum has exceeded HK$80, a cumulative increase of more than 60% over the issue price of HK$46. The day after the release of the August 29 interim report, the company's stock price closed up more than 8%, which also showed investors' confidence in future prospects. In September 2024, Dashi shares were successively included in the Hang Seng Composite Stock Index and Hong Kong Stock Connect list, and liquidity was partially mitigated.

According to the October 17 post-market Dashi stock announcement, Domino's Pizza LLC (Domino's Pizza's indirect wholly-owned subsidiary) sold 10 million shares (about 7.66% of the total issued share capital of Dashi shares) to many institutional investors through major OTC transactions. From the company's listing in March 2023 until the sale of shares, Domino's Pizza LLC held 18,101,019 shares, accounting for about 13.87% of the company's total issued share capital. After the sale of shares is completed, Domino's Pizza LLC accounts for about 6.21% of the company's total issued share capital, and the remaining shares will be banned for 90 days from the sale date of the shares.

The current partial reduction in Domino's Pizza holdings and the active participation of diverse shareholders have injected new vitality into Dashi shares, and the liquidity of Dashi shares has been greatly improved. According to the Zhitong Finance App, the operation of this capital did not affect the long-term strategic partnership between the two parties, and had no significant impact on the company's financial and business performance.

As the pursuit of high quality and price ratio gradually becomes a new consumer trend, Domino, which has efficient operation capabilities, digital genes, and strong brand advantages, is expected to become one of the leading “leading players” in the restaurant sector. Meanwhile, the continuous improvement in profit levels and the acceleration of store expansion all indicate that the company is facing opportunities for sustainable and healthy growth. As the consumer market continues to heat up in the future, Dashi Co., Ltd. is also expected to achieve a “Davis double hit” between performance and stock price.

* Official online ordering channel: Domino's Pizza China official website/official WeChat account and apply/official app.

* For information on cities participating in the Buy 1, Get 1 Free and 3 consecutive events, please refer to the Domino's Pizza China official online ordering channel page or customer service feedback.