Maintain BUY but trimmed TP to HK$ 37.90, based on 45x FY21E P/E unchanged. We expect HDL’s traffic to normalize in 2H20E and its expansion plan to remain intact in FY20E, as the industry is still far from saturated.
- FY19 NP was 5%/4% below CMBIS/ BBG’s est.. Haidilao’s FY19 net profit grew by 42% YoY to RMB 2.3bn, 5%/4% below CMBIS/ BBG’s est.. We attributed the miss to: 1) lower-than-expected GP margin in 2H19 (at 57.4% vs CMBIS est. of 59.3%), dragged by more promotions to ramp up new stores and raw material prices pressure in 4Q19 and 2) lower-than-expected OP margin, due to beat in restaurant openings (added 302 vs CMBIS est. of 282).
- Restaurant suspension is over and table turn is picking up well, we forecast growth to normalize in 2H20E. Management cited that traffic had been recovering well, where table turnover reached ~2x in late Mar (3x/ 1x for 1st/ 2nd batches of restaurants resumed business since 14 Mar/ 21 Mar 2020). We find these numbers positive due to the limited opening hours (only open during daytime vs 24 hours in the past). We also expect traffic to normalize and generate sales/ net profit growth of 23%/ 27% in 2H20E.
- Table turnover holds up well in both new and old restaurants. Even with 302 new stores in FY19 (65% YoY growth), table turnover held up well in both new/ existing stores, at 4.1x/ 4.9x in FY19 (vs 4.5x/ 5.2x in FY18). We believe canalization exists but is not very significant. Management is confident that there is still room to grow as many cities (e.g. Beijing and Guangzhou) still have table turnover of above 5x, implying 2-3 hours waiting time during peak hours, which may bring adverse customer experience.
- Stores opening plan in FY20E should be maintained. We find it likely for the Company to keep its expansion plan as it still has ~300 rental contracts signed (with stores not yet being opened). We maintained our new openings estimates of 286/ 288/ 238, and total stores will reach 1,054/ 1,342/ 1,580in FY20E/ 21E/ 22E, implying a 27% CAGR.
- Rising raw material price is a concern but may be offset by menu price adjustments and more efficient supply chain. Raw material prices in FY20E is a risk that we should be aware. But we believe the Company will deal with it by ASP adjustments and boosting supply chain efficiency.
- Maintain BUY and trimmed TP to HK$ 37.90. We revised down our FY20E/ 21E EPS by 8.5%/ 9.2%, to factor in 1) more days of store suspensions and 2) lower-than-expected GP margin. We also cut TP to HK$ 37.90 but maintain BUY, based on 45x FY21E P/E (unchanged), implying a 2.3x 3 years PEG. Current valuation is not demanding, at 38x FY21E P/E or 1.7x PEG (vs int’l catering/ consumer staple peers median of 2.7x/ 2.3x).
