【公司研究】大家樂(341 HK)– 寒冬來臨,誰能免疫,業務能見度有限

SUMMARY. 1H20E NP may fall by 33% YoY on weak sentiment and operating deleverage in HK, even though a rather robust China sales. We believe those negatives to likely linger in 2H20E, hence we downgrade to HOLD and cut TP to HK$ 19.05, based on 21x FY21E P/E (from 24x FY20E), vs its 5 yrs avg. of 21x.

 

  • 1H20E (ending Sep 2019) NP att. to decline by 30%+ YoY. We expect sales/ NP att. to fall by 1%/ 33% in 1H20E (1/3 profit decline suggested in profit warning), vs 0%/ +39% in 2H19, due to: 1) sales decline in HK, esp. for the casual dining segment, by as a result of social unrest (temporary store closures and weak consumer sentiments) during Jul-Sep 2019, 2) operating deleverage as a great portion of rental, labour and other opex are fixed, 3) relatively robust sales growth in China, boosted by faster store expansion. We expect CDC’s HK SSSG to fall by 6% in 1H20E (from -2% in 2H19), and HK fast causal and casual dining sales to drop by 5% in 1H20E (from -3% in 2H19). We also expect GP margin to fall to 10.5%, by 1.8 ppt in 1H20E (vs 12.3% in 1H19) due to higher discounts/ promotion given, to lure traffic. 

 

  • HK catering sales plummeted by 12% in 3Q19, fast food was resilient, but still, not immune. Hong Kong catering sales declined by 13%/ 13%/ 9% in Sep/ Aug/ Jul 2019, far worse than 0% in 2Q19. Fast food sales still managed to grow by 2% in 3Q19, while Bars/ Chinese and Non-Chinese restaurant sales were down by 18%/ 18% and 13%. But we are not surprised as the HK retail was substantially impacted by recent social unrest which began in late Jun 2019, almost no sub-sectors was immune.

 

  • Outlook is still uncertain for HK (better for China), but store expansion may continue. Social unrest had sustained into Nov2019, the negatives, in our view may linger into 2H20E. We now estimate sales growth in FY20E to be -1.4%/ -3.0%/ 4.0%/ 12.5% for HK QSR & Institutional Catering/ HK Fast Casual & Casual Dining/ Food Processing & Distribution/ Mainland China, and overall NP att. to fall by 18% in FY20E. However, this may be good for store expansions as rental pressure may ease, hence positive for longer term growth. 

 

  • Downgrade to HOLD and cut TP to HK$ 19.96. We revise down our EPS by 25.2%/ 24.7%/ 25.4% in FY20E/ 21E/ 22E, to factor in: 1) highly disappointing SSSG in HK (both fast food and fast casual), 2) significant operating deleverage and 3) relatively resilient China sales and expansion. We downgrade the Company to HOLD and cut TP to HK$ 19.05 based on 21x FY3/21E (rolled over from 24x FY20E), as we find the outlook highly uncertain plus a not so attractive valuation. The counter is trading at 24x FY3/21E (1.s.d above 21x - the 5 years average P/E) and only at 4% yield.

 

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