Greater China Equity Long/Short Analyst

Eric Chen

Equity Bottom-Up

<ul>
<li>Sentiment driven rally is fading. Although COVID exit remains swing factor, individual company’s performance will increasingly be driven by their business models.</li>
<li>Our proprietary store expansion framework suggests divergent growth outlook for major players - stretched for Haidilao, moderate for Jiumaojiu and Yum China, and ample for Xiabuxiabu.</li>
<li>Xiabuxiabu is our top pick due to its strong turnaround not yet priced in depressed valuation. We also like Yum China but stay cautious on Jiumaojiu and Haidilao on valuation.     </li>
</ul>


Sentiment driven rally is fading. Although COVID exit remains swing factor, individual company’s performance will increasingly be driven by their business models.
Our proprietary store expansion framework suggests divergent growth outlook for major players - stretched for Haidilao, moderate for Jiumaojiu and Yum China, and ample for Xiabuxiabu.
Xiabuxiabu is our top pick due to its strong turnaround not yet priced in depressed valuation. We also like Yum China but stay cautious on Jiumaojiu and Haidilao on valuation.     


China Catering Sector: In Search of Alpha

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>The 1H24 results were inline but the underlying was slightly positive (e.g. resilient GP margin, as well as the restaurant-level OP margin).</li><li>We agree that both Tai Er and Song are making loads of efforts to transform, but under such a tough industry and macro environment, we would not be able to turn positive, unless we can really see a compelling improvement in figures in the near term.</li><li>Despite the macro weakness, both Tai Er and Song are actively transforming themselves and we think they are making progress.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

The 1H24 results were inline but the underlying was slightly positive (e.g. resilient GP margin, as well as the restaurant-level OP margin).We agree that both Tai Er and Song are making loads of efforts to transform, but under such a tough industry and macro environment, we would not be able to turn positive, unless we can really see a compelling improvement in figures in the near term.Despite the macro weakness, both Tai Er and Song are actively transforming themselves and we think they are making progress.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Jiumaojiu (9922 HK) - Transforming Despite Tough Macro Backdrop

<ul><li>Jiumaojiu issued a profit warning for 1H24, which is still awful compared to our already negative outlook.</li><li>With risks to linger in the near future (SSSG drop may sustain and store expansion may also slow down, etc.), plus the fairly high valuation (23x FY24E P/E), we now cut our FY24E-26E net profit forecasts by 69%-57% and downgrade the stock to HOLD.</li><li>We also think the implications for the catering sector and most of the peers are rather gloomy.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Jiumaojiu issued a profit warning for 1H24, which is still awful compared to our already negative outlook.With risks to linger in the near future (SSSG drop may sustain and store expansion may also slow down, etc.), plus the fairly high valuation (23x FY24E P/E), we now cut our FY24E-26E net profit forecasts by 69%-57% and downgrade the stock to HOLD.We also think the implications for the catering sector and most of the peers are rather gloomy.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Jiumaojiu (9922 HK) - We See Risks in 2H24E After the Miss in 2Q24

<ul><li>Maintain BUY and raise TP to HK$8.39 (we now assume a gradual improvement in SSS recovery rate onwards as the group is rolling out more new initiatives this year).</li><li>We are still cautious about catering sector, but JMJ’s numbers have stabilized lately.</li><li>A rebound in share price is possible given undemanding valuation (12x FY24E P/E) while our TP is based on 17x and 3-year sales/ NP CAGR are at 20%/ 25%.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Maintain BUY and raise TP to HK$8.39 (we now assume a gradual improvement in SSS recovery rate onwards as the group is rolling out more new initiatives this year).We are still cautious about catering sector, but JMJ’s numbers have stabilized lately.A rebound in share price is possible given undemanding valuation (12x FY24E P/E) while our TP is based on 17x and 3-year sales/ NP CAGR are at 20%/ 25%.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Jiumaojiu (9922 HK) - Resilient Margin in 2H23 with Positive Outlook

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>Chinese restaurant sector could see 15% YoY revenue growth in Q1 2023, as Total Retail Sales of Meals in China rose 16.4% YoY during Jan-Feb 2023.</li>
<li>
<a href="https://www.smartkarma.com/entities/yum-china-holdings-inc-0533692c-6dae-4014-baa1-ed0b050638f2" target="_blank" data-smartkarma-citation="entities:29259:1" rel="noopener">Yum China Holdings Inc (9987 HK)</a>'s 1Q23 OP may reach a record high of $350m, and annual profitability is expected to double as restaurant footfall recovers.</li>
<li>We suggest buying Yum China for potential multiple expansion due to rapid profitability growth.</li>
</ul>


Chinese restaurant sector could see 15% YoY revenue growth in Q1 2023, as Total Retail Sales of Meals in China rose 16.4% YoY during Jan-Feb 2023.

Yum China Holdings Inc (9987 HK)'s 1Q23 OP may reach a record high of $350m, and annual profitability is expected to double as restaurant footfall recovers.
We suggest buying Yum China for potential multiple expansion due to rapid profitability growth.


Yum China: Looking Delicious with Record Profits Expected in 1Q23 and Potential for Further Growth

China

Jiumaojiu International Holdings Limited operates as a holding company. The Company, through its subsidiaries, focuses on manufactures food products. Jiumaojiu International Holdings serves customers in China.

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Jiumaojiu (9922 HK)

China Catering Sector: In Search of Alpha

Sentiment-driven rally is fading. We expect investors' focus to shift to company fundamental. Our store expansion framework points to Xiabu as the...

Eric Chen