Greater China Equity Long/Short Analyst

Eric Chen

Equity Bottom-Up

<ul>
<li>We believe the recovery of China consumption is "not yet solid", but not faltering.</li>
<li>China catering sector's recovery stays on track, although Q2 has historically been a low season.</li>
<li>Long Xiabuxiabu and short Jiumaojiu to play the sector's recovery while hedging against potential macro weakness.</li>
</ul>


We believe the recovery of China consumption is "not yet solid", but not faltering.
China catering sector's recovery stays on track, although Q2 has historically been a low season.
Long Xiabuxiabu and short Jiumaojiu to play the sector's recovery while hedging against potential macro weakness.


China Catering Sector: Long Xiabuxiabu / Short Jiumaojiu

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>FY22 results inline but margin improved meaningfully in 2H22.</li><li>Sales declined by 23% YoY to RMB 4.7bn and registered net losses of about RMB350mn, implying a -7.5% NP margin, both are inline with profit warning.</li><li>GP margin was at 61.9% (missed CMBI est. of 62.6%) but it was offset by better-than-expected other income and D&amp;A expenses.</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.

FY22 results inline but margin improved meaningfully in 2H22.Sales declined by 23% YoY to RMB 4.7bn and registered net losses of about RMB350mn, implying a -7.5% NP margin, both are inline with profit warning.GP margin was at 61.9% (missed CMBI est. of 62.6%) but it was offset by better-than-expected other income and D&amp;A expenses.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.

Xiabu Xiabu (520 HK) – Both sales and margin recovery are on track

<ul><li>XBXB (520 HK) issued a profit warning and expects its sales to fall by 23% YoY to RMB 4.7bn, around 14%/ 19% lower than BBG/ CMBI est..</li><li>It also forecast net losses to be at about RMB 320mn-340mn in FY22E (vs RMB 280mn in FY21), missing BBG/ CMBI est. of about RMB 190mn.</li><li>Management believed the drag was mainly due to temporary suspension of dine-in services and operating deleverage during the pandemic in FY22E.</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.

XBXB (520 HK) issued a profit warning and expects its sales to fall by 23% YoY to RMB 4.7bn, around 14%/ 19% lower than BBG/ CMBI est..It also forecast net losses to be at about RMB 320mn-340mn in FY22E (vs RMB 280mn in FY21), missing BBG/ CMBI est. of about RMB 190mn.Management believed the drag was mainly due to temporary suspension of dine-in services and operating deleverage during the pandemic in FY22E.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.

Xiabu Xiabu Catering (520 HK) – Dragged by 4Q22 but FY23E outlook still bright

Thematic (Sector/Industry)

<ul><li>Maintained OUTPERFORM after our Shenzhen Consumer Tour.</li><li>We visited a number of companies (catering, hotel and sportswear brands) and experts (catering &amp; shopping mall operators) during our trip to Shenzhen this week.</li><li>This channel check has strengthened our OUTPERFORM view on the Consumer discretionary sector, backed by 3 trends</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.

Maintained OUTPERFORM after our Shenzhen Consumer Tour.We visited a number of companies (catering, hotel and sportswear brands) and experts (catering &amp; shopping mall operators) during our trip to Shenzhen this week.This channel check has strengthened our OUTPERFORM view on the Consumer discretionary sector, backed by 3 trendsContent 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.

China Consumer Sector – Shenzhen Trip: sustained growth in Feb 2023

<ul><li>Initiate BUY on Xiabu Xiabu Catering and put it as our sector top pick.</li><li>We forecast 20%/ 53% of sales/ restaurant level OP CAGR in FY21-24E vs 9%/ -15% in FY18- 21, driven by improvements in: 1) internal communication, 2) incentive system, 3) resources sharing and synergies, and 4) price to quality and store decoration, etc.</li><li>Noted that our FY23E-24E net profit est. are about 60% higher the BBG est.</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.

Initiate BUY on Xiabu Xiabu Catering and put it as our sector top pick.We forecast 20%/ 53% of sales/ restaurant level OP CAGR in FY21-24E vs 9%/ -15% in FY18- 21, driven by improvements in: 1) internal communication, 2) incentive system, 3) resources sharing and synergies, and 4) price to quality and store decoration, etc.Noted that our FY23E-24E net profit est. are about 60% higher the BBG est.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.

Xiabu Xiabu Catering – Much Needed Reforms to Bring XBXB Nationwide

China

Xiabuxiabu Catering Management China Holdings Co Ltd  owns and operates a chain of restaurants in China. The company allows customers to choose from a selection of vegetables, meats, and seafood to cook in their own individual hot pot in its restaurants.

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Xiabuxiabu Catering (520 HK)

China Catering Sector: Long Xiabuxiabu / Short Jiumaojiu

The recovery of China catering sector remains on track. We recommend long Xiabuxiabu / short Jiumaojiu to play the recovery while hedging against...

Eric Chen

Xiabu Xiabu (520 HK) – Both sales and margin recovery are on track

Supported by robust XBXB and slightly weak Cou Cou performance YTD 2023, the Company is still on track to achieve its FY23E target in our view.

CMB International