Maintain BUY and adjusted SOTP-based TP to HK$ 11.44, based on 10x FY21E P/E for Jiu Mao Jiu and 35x FY21E P/E for Tai Er (rolled over from 17x FY20E P/E and 0.65x 3 years PEG). The speedy recovery and stunning popularity of Tai Er brand, in our view, could yield exciting outperformance for the Company in the long run. We think its current valuation at 21x FY21E P/E is attractive with 106% FY20-22E EPS CAGR (vs industry average at 22x).
- FY19 pretax profit missed by 11% due to slightly slower-than-expected expansion. FY19 net profit grew by 136% YoY to RMB 164mn, 18%/ 12% vs CMBIS/ BBG’s est., while pre-tax profit only missed our est. by 11%. We attribute this miss to: 1) slower-than-expected store openings (by 3%/ 6% for Jiu Mao Jiu/ Tai Er), 2) higher-than-expected other operating expenses, such as travelling, A & P, IPO related and others (at 5.7% of sales vs CMBIS est. of 5.3%). We regard these are one-off, where opening was temporary delayed due to some fire safety regulation issues and higher opex was due to listing related activities.
- Tai Er’s retail sales recovery is very well and its store expansion plan should be still intact. Cited by the management, Tai Er’s per store revenue recovery is highly decent, reaching 90% of the early Jan 2020 level, a number that should outperform majority of the catering industry in mainland China. Its delivery business had generated 40%of its per store sales, a level that is no doubt industry leading. Its dine-in business is also impressive, generated 60% of per store sales, even with the seats limitation, due to greater spacing per customer requirement by the government. We forecast its sales to normalize from mid-April and on top of that, we believe its expansion of 80 new stores in FY20E is still achievable, thanks to ample choice of shopping malls and superior popularity.
- Jiu Mao Jiu’s expansion may have to delay. We believe Jiu Mao Jiu’s new round of store expansion has to be paused due to the unfavorable macro environment, thus may result in missing the pre-announced target in FY20E (adding 18 new stores). The Jiu Mao Jiu brand has several plans to reform and one of those is the trial run of four new format stores in FY20E.
- Maintain BUY and adjusted TP to HK$ 11.44. We adjusted FY20E/ 21E EPS estimates by -19.1%/ +1.1%, to factor in 1) losses due to store suspension and 2) more favourable rental costs. We maintain BUY but fine-tuned TP to HK$ 11.44, based on 10x/ 35x FY21E P/E for Jiu Mao Jiu/ Tai Er (rolled over from 17x FY20E P/E for Jiu Mao Jiu and 0.65x 3 years PEG for Tai Er). Valuation is attractive at 21x FY21E P/E because we foresee its sales performance to bottom out from now on with 106% FY20-22E EPS CAGR, compared to industry average at 22x FY21E P/E.
