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GUOQUAN FOOD(2517HK) Bringing Restaurant-Quality Dining to Your Home Table China'sdominant one-stop provider of at-home meal solutions The company’sretail store countreached10,150 by the end of 2024. Leading the nearly RMB400 billion market with a 3% share, the companydifferentiateitselffromthe most extensiveand decentralized network, including a significant presence in township markets (around 2,000stores). Its robust supply chain benefits from scale-driven procurement and increasing self-production (currently 25% fromsevenfactories). While hotpot remains a primary offering(80%), the product portfolio is expanding to include BBQ, Chinese, and Western options,supported by a brand imagefocusingon approachability andneighbourhoodcommunity. Extensive offline stores complemented by online After arestructionof sales network, the company's store count has stabilized at over 10,000,with renewed growth in late 2024,andweexpectedanet increase of780stores in 2025. Whilepreviously balanced across city tiers, future strategy will prioritize lower-tier markets forexpansion. Single-store revenue, impacted by reduced at-home demand in 2023, saw its declinesignificantly narrow in 2024. Online presence includes the Guoquan APP, WeChat mini-programs, Douyin, and partnerships with delivery platforms like Meituan and Ele.me for broadconsumer access. Build strong supply chain moat Leveraging itsself-owned production facilities, Guoquan pioneered a 'single product, singlefactory' upstream supply chain cooperation model. This combined with the nationwidelogisticsnetwork, creates an integrated supply and productionchain. The company currently holdsinterests inseven factories across the country and plans further upstream supply chaininvestments in 2025. Source:Bloomberg, ZhongtaiInternational Research Initiationcoverage with“BUY”rating, target priceHK$5.17 We forecast a revenue CAGR of 22.2% from 2025 to 2027E. Following supply chain integration,gross margin is expected to improve, while economies of scale will reduce overall operatingexpenses. We anticipate net profit growth to outpace revenue growth. Using a DCF valuationmodel with a beta of 1.2and a WACC of 11.0%, we derive a target price of HK$5.17; initiate with“BUY”rating. AnalystVivien Chan+8523979 2941vivien.chan@ztsc.com.hk Contents COMPANY BACKGROUND................................................................................................................................................................3INDUSTRY PERSPECTIVE...................................................................................................................................................................5CHINA’S DINING SECTOR SETS TO A STRONG GROWTH DUE TO RISING INCOME.......................................................................................................5HOME DINING MARKET ON THE FAST-GROWING TRACK.....................................................................................................................................5HOT POT ANDBBQAS THE MAINSTREAM CATEGORY OF AT-HOME DINGING..........................................................................................................7THE AT-HOME MEAL PRODUCTS MARKET IS HIGHLY FRAGMENTED.......................................................................................................................7INVESTMENT THESIS........................................................................................................................................................................9RAPID SALES CHANNEL EXPANSION LEADS TO IMPROVED PROFITABILITY................................................................................................................9MEMBERSHIP ECOSYSTEM FORMS A STABLE REVENUE BASE..............................................................................................................................10CONTINUOUS ENHANCING PRODUCT MIX.....................................................................................................................................................11VERTICAL INTEGRATION TO DRIVE GROSS MARGIN..........................................................................................................................................12PENETRATION IN LOWER-TIER CITIES PROVIDES MORE GROWTH POTENTIAL.........................................................................................................13VALUATION....................................................................................................................................................................................15RISK FACTORS................................................................................................................................................................................17HISTORICALRATING ANDTARGET PRICE........................................................................................................................................19 Char