Financial Analysis Report on Tims China – Net Profit Decline

Business Description

TH International Limited, operating under the brand Tims China (Nasdaq: THCH), is an exclusive master franchisee of Tim Hortons coffee shops in mainland China, Hong Kong, and Macau. The company was founded by Cartesian Capital Group and Tim Hortons Restaurants International, a subsidiary of Restaurant Brands International.

Its core business operations include the sale of coffee, beverages, and food items through company-owned and franchised stores. As of September 30, 2024, Tims China operates 946 stores, comprising 564 company-owned and operated stores, and 382 franchised stores.

Industry Position and Market Share

Tims China operates in the highly competitive Chinese coffee market, facing fierce price competition. The company focuses on product differentiation, operational efficiencies, and supply chain capabilities to maintain its market position.

Competitors include international brands such as Starbucks and local chains. Tims China’s market share is not explicitly stated, but it is evident that the company is expanding its footprint with a growing number of franchised stores.

Revenue Streams and Customer Base

The company’s revenue streams include sales from company-owned and operated stores and franchise fees. The customer base is bolstered by a loyalty program with 22.8 million registered members, representing a 35.3% year-over-year growth.

Financial Statement Analysis

Income Statement

For the third quarter of 2024, Tims China reported total revenues of RMB359.6 million (USD51.3 million), a decrease of 17.1% from the same quarter in 2023. The company-owned and operated store sales were RMB299.5 million (USD42.7 million), a 22.9% decrease from the previous year. The net loss from continuing operations was RMB87.4 million (USD12.5 million), compared to RMB147.6 million for the same quarter in 2023.

Balance Sheet

As of September 30, 2024, the company’s total assets were RMB1,676.2 million (USD239.1 million), compared to RMB2,215.4 million as of December 31, 2023. The total liabilities stood at RMB2,358.8 million (USD336.4 million), resulting in a shareholders’ deficit of RMB682.7 million (USD97.4 million).

Cash Flow Statement

For the nine months ended September 30, 2024, net cash used in operating activities was RMB8.0 million (USD1.1 million). Net cash used in investing activities was RMB21.3 million (USD3.0 million), and net cash provided by financing activities was RMB16.2 million (USD2.3 million).

Key Findings

Strengths

• Achieved positive adjusted corporate EBITDA for the second consecutive quarter.
• Improved company-owned and operated store contribution margin to 13.3%, demonstrating operational efficiencies.
• Significant year-over-year reductions in costs, including food and packaging, labor, and marketing expenses.
• Strong growth in the loyalty program with 22.8 million members.

Risks

• Decline in total revenues and same-store sales growth, indicating potential challenges in maintaining customer traffic and sales volumes.
• Net loss from continuing operations, although improved from the previous year, still indicates financial challenges.
• Significant shareholders’ deficit, reflecting financial instability.

Recommendations

For Current Investors

If you are currently holding Tims China stock, it is advisable to hold onto your shares. The company shows potential for recovery with its operational improvements and cost reductions. However, closely monitor the company’s financial performance in the upcoming quarters.

For Potential Investors

If you are not currently holding Tims China stock, it is recommended to wait before making an investment. While the company is making strides in operational efficiencies, the overall financial health and revenue decline pose significant risks. Consider investing once there is a clearer indication of sustained profitability and revenue growth.

Special Activities

• Completed “made-to-order” renovations of 539 stores, enhancing customer experience with open kitchens and fresh meal preparation stations.
• Launched a successful Bagel Festival with new seasonal products and promotions to boost customer traffic.
• Participated in the Fourth ESG Global Leaders Summit, showcasing its commitment to sustainability.

Report Date and Fiscal Year

The financial report is dated November 12, 2024, and covers the third quarter of the financial year 2024.

Disclaimer

The recommendations provided are based on the analysis of the company’s financial report and should not be considered as financial advice. Investors are encouraged to conduct their own research and consult with a financial advisor before making investment decisions.