4Q24: Misses on weak SSS and EBIT margin
ZEN reported a 4Q24 net profit of Bt18mn, sinking 53% YoY and 22% QoQ, missing INVX by 33% (at Bt27mn) due to weak SSS and EBIT margin. We have a cautious view on revenue in view of low consumer spending and competition in the restaurant industry and question whether the allowance for doubtful debt for its franchise business will continue. Maintain Neutral with a new end-2025 DCF TP of Bt7.5/share (down from Bt8/share).
4Q24: Below estimates from weak SSS and EBIT margin. ZEN reported a 4Q24 net profit of Bt18mn, sinking 53% YoY and 22% QoQ, missing our estimate of Bt27mn by 33% due to weak SSS and EBIT margin. ZEN ended the year 2024 with net profit of Bt57mn, plummeting 64% YoY.
DPS of Bt0.17 on 2024 operations, 2.5% dividend yield, XD March 10, payment May 15. This implies a high dividend payout of 90% in 2024, up from 57% in 2023.
Highlights:
• (-) Restaurants (74% of revenue): Weak SSS continued at -9.6% (vs. -7.9% in 4Q23 and -13% in 3Q24), reflecting continued low consumer spending and intense competition, despite its efforts to boost SSS and margin by revamping stores and building brand recognition. In 2024, SSS was -11.3% (down from 0.1% in 2023). Taking a cautious stance, ZEN added no owned outlets in 4Q24, with owned outlets at end-2024 at 177 (from 182 in 2023).
• (+) Retail merchandising (20% of revenue): Revenue grew 23% YoY and 14% QoQ in 4Q24, driven by increasing OEM products and distributors for its seasoning business and more new product items to expand its customer base for frozen seafood.
• (-) Franchise business (3% of revenue). Fees came to Bt34mn, up 62% YoY and 89% QoQ off six new franchised outlets, mostly overseas, in 4Q24. ZEN had 140 total franchised outlets in 2024 (down from 159 outlets in 2023). In Thailand, its franchised outlets shrank to 126 from 149 in 2023, which we believe is due to the economic slowdown. ZEN says it has made an allowance for doubtful debt in its franchise business (amount not revealed).
• EBIT margin was 4.5% in 4Q24, slashed from 6.0% in 4Q23 and 4.7% in 3Q24 due to promotional discounts to stimulate sales and the allowance for doubtful debt in the franchise business.
Earnings cut. We cut our 2025F by 18% and 2026F by 26% to factor in the weak 4Q24. The strong earnings growth in 2025 will be off the 2024 low base; we stay cautious on revenue in view of low consumer spending and competition in the restaurant industry and concern on whether the allowance for doubtful debt for the franchise business will continue. Catalysts are improving SSS and EBIT margin as these will sustainably drive earnings. We maintain our Neutral rating with a new end-2025 DCF TP of Bt7.5 (down from Bt8.0), based on WACC at 7.2% and long-term growth of 2%.
Risks. 1) Economic slowdown impacting consumer spending, 2) intense competition, 3) rising costs and 4) change in consumer preferences. We see ESG risk as consumer safety and food quality (S).
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