We are confident that the worst is over for HK, and China will rebound strongly. We adjust our EPS by +4%/ -5% in FY21E/ 22E, maintain BUY and lifted TP to HK$ 19.07, based on 19x FY3/21E P/E unchanged, vs its 5 years avg. of 21x.
- FY20 results inline with profit warning. FY3/20 net profit fell by 87% YoY to HK$ 74mn, inline with the pre-announced 85-90% and CMBIS est.’s 85% drop. Note that: 1) HK$ 57mn pandemic subsidies granted from HK government was roughly offset by HK$ 42mn fair value losses of investment property (HK$ 20mn gains last year) and 2) a HK$ 40mn one-off impairment was recorded due to change of accounting standard into IFRS 16.
- CDC and fast food category outperformed. CDC’s fast food and casual dining sales declined by 12%/ 24% YoY during Oct 2019-Mar 2020, inline with/ outperformed HK fast food/ non-fast food sales drop of 11%/ 27%.
- HK market: turn-around in sight, plus meaningful subsidies. We believe the worst is over, as 2H20 was absolutely devastating, given 1) drastic drop in store traffic during the COVID-19, and 2) absence of sales from university and hospitals, etc, esp. when Asia Pacific catering had signed seven new contracts in 2019. We are confident that customers traffic will be better in 1H20E, thanks to 1) re-opening of stores, 2) resumption of schools since 27 May, 3) minimal local cases, 4) shift of demand from high-end to mass market and 5) better consumer sentiment with aids from government. Most importantly, CDC can receive a large scale one-off subsides (HK$ 57mn was booked in 2H20 and we raised our forecast to HK$ 243mn in FY21E).
- Delivery business could be the driver. We believe CDC realizes the importance of delivery business, esp. after the virus outbreak. It will carry out more store remodeling, in order to become more delivery and take away friendly. We estimate that delivery sales mix is only at single-digit, hence implying huge potential. Cafe de Coral brand is now working with Foodpanda, while Mixian Sense and Shanghai Lao Lao Brand are already on Deliveroo.
- China market: Likely a strong rebound. We expect China sales to grow faster than HK in FY20E, due to its greater delivery sales mix (its key partner Meituan’s active users even jumped 6% YoY in 1Q20) and rapid store expansion. We forecast 15 new stores in FY21E (+13% YoY, vs 7% in FY20).
- Maintain BUY and raised TP to HK$ 19.07. We adjust our EPS by +4%/ -5% in FY21E/ 22E, to factor in better subsidies but slightly slower SSSG. We maintain BUY and lifted TP to HK$ 19.07 based on 19x FY3/21E unchanged. As we believe the worst is over, its current valuation of 15x FY3/21E is attractive, vs 5 years avg. of 21x.
