Taste Gourmet: Positive Profit Alert for H1 2022

We received a positive profit alert for H1 2022 for Taste Gourmet Group Ltd (8371 HK), as expected in our last insight, Taste Gourmet: Conviction Growing As Execution Remains Solid, the numbers based on the profit alert though are below our expectations which we largely believe is due to higher employee and food costs (we will get more clarity on this when the results are fully published on the 12th of November 2021). We calculate the H1 FY22 profits based on the alert released at 24 mn HKD (vs. our expectation of around 27 mn HKD).

We believe that the company is still on track to hit a 60 mn HKD profit number for FY22, putting it at 6.5x FY22 PE. We also believe that the management will adhere to a 50% payout ratio, resulting in a dividend yield of 7.9%. With close to 90 mn HKD of net cash on the balance sheet, the stock trades an even cheaper ex-cash at 4.5x FY22 PE.

The only major near-term risk we see is the resurfacing of Covid restrictions on dine-ins.