Key takeaway

Handmade xiaolongbao stores are reshaping a new BABI. Theindustry is entering a phase of mergers and consolidation, wherethe company’s advantages stand out. In July 2025, the companyaccurately captured consumer demand and launched a newhandmade xiaolongbao store format. After its launch, marketfeedback has been positive, effectively validating the feasibility ofthe single-store model. As of the end of 1Q26, the new storeformat had reached 116 locations, including 30 Qinglu-brandedxiaolongbao stores. The model has completed validation from 0to 1 and has begun entering a rapid replication stage from 1 toN, opening new growth space for the expansion of the singlestoremodel and nationwide chain development. We believe thecompany has entered a new stage of development. In 2026, thetarget for handmade xiaolongbao stores is at least 600, with astretch goal of 700. On one hand, a healthy single-store modeland nationwide production capacity support endogenousgrowth. On the other hand, ample cash reserves enableaccelerated regional penetration through external M&A.

Event

The company releases 1Q26 reportIn 1Q26, the company recorded revenue of RMB380mn, YoY+2.82%. Net profit attributable to shareholders of the parentcompany reached RMB47mn, YoY +26.93%. Net profitattributable to shareholders of the parent company excludingnon-recurring items was RMB41mn, YoY +6.38%.

Quick Take

Slight gap in same-store performance, seize theacceleration period of handmade xiaolongbao storeopeningsIn 1Q26, revenue from the franchise channel reachedRMB277mn (YoY +4.46%). Revenue from the directly operatedchannel reached RMB5mn (YoY -6.54%). Revenue from thegroup catering channel reached RMB90mn (YoY -3.36%).Revenue from other channels reached RMB8mn (YoY+36.76%). As of 1Q26, the company had 5,890 stores, a netYoY increase of 246. The revenue fluctuation in Q1 wasmainly affected by two factors. First, the Spring Festival came relatively late this year (February 17). Manyfranchisees are from Anhui and Hubei, returning home earlier and resuming work later, which disruptedorder placements from January to March. Second, some stores suspended operations in March due toupgrades and renovations, which had a short-term impact on Q1 revenue. In 1Q26, same-store revenue oftraditional stores recorded a small single-digit shortfall, mainly due to fewer operating days during theSpring Festival and temporary closures for upgrades. The YoY decline in group catering revenue wasmainly due to the company’s proactive optimization of its customer structure. Since last year, the companyhas divided major clients into two categories: direct sales and distribution, and has adopted differentiatedstrategies. At the same time, it has focused on expanding customized clients such as chain restaurants,convenience stores, and hotels, pursuing high-quality growth.As of the end of 1Q26, the new store formats had been rolled out to 116 locations, including 30 Qinglubrandedxiaolongbao stores. Store openings in 1Q were mainly concentrated in March after the SpringFestival. Openings in 2Q are expected to enter an acceleration phase. The number of stores opened inApril met expectations. In 2026, the company targets at least 600 handmade xiaolongbao stores, with astretch goal of 700. As the profitability of existing stores becomes more evident, the proportion of newstore openings is expected to increase further by year-end.Pork cost dividend continues, expense ratios remain within a reasonable rangeOn the cost side, the company recorded a gross margin of 27.91% in 1Q26, up 2.44pcts YoY. Theimprovement was mainly due to the continued low level of pork prices, a key raw material. The costdividend is expected to continue in 2026. On the expense side, the selling expense ratio in 1Q26 was 4.37%(+0.31pct YoY); the administrative expense ratio was 7.94% (+0.39pct YoY); the R&D expense ratio was0.73% (-0.05pct YoY); and the financial expense ratio was -0.70% (+0.87pct YoY). The increase in the sellingexpense ratio was mainly to support new store expansion by increasing store operation support staff.Expenses were relatively front-loaded and are expected to be diluted later. Ultimately, the net profitmargin excluding non-recurring items reached 10.91%, up 0.37pcts YoY.Earnings forecast: The company is expected to record revenue of RMB2.08bn/RMB2.374bn/RMB2.688bnin 2026–2028, representing YoY growth of 11.89%/14.15%/13.22%. Net profit attributable to shareholders ofthe parent company is expected to reach RMB301mn/RMB360mn/RMB411mn, up 10.22%/19.54%/14.31%YoY. The “Buy” rating is maintained.

Risks:

1. Risk of raw material price fluctuations. The company’s main raw materials include pork, flour, and edibleoil. Among them, pork prices are significantly affected by supply and demand and fluctuate considerably.Historically, this has had an important impact on the company’s performance. If pork prices remain at ahigh level, it will negatively affect the company’s net profit.

2. Food quality control: The company’s products are breakfast foods that are used frequently in daily lifeand across a wide range of settings. They are directly related to people’s dietary health. If any food safetyincidents occur, public trust in the company’s products will decline and materially adversely affect thecompany’s business operations.

3. Store openings below expectations: During the nationwide expansion of the company's xiaolongbaostores, it may encounter resistance from local bun brands, which may increase the difficulty of regionalexpansion and lead to store openings falling short of expectations.