We are confident that CDC to take more market shares amid the pandemic. The worst should soon be over for HK and China sales should rebound strongly. However, latest industry data suggested SSSG drag is greater than our estimates, therefore, we cut our EPS by 7%/ 16%/ 15% in FY21E/ 22E/ 23E. Maintain BUY and cut TP to HK$ 18.37, based on 24x FY3/22E P/E (rolled over from 19x FY3/21E, re-rating for leaders is likely thru shares gain), vs its 5 years avg. of 21x.
- HK catering is still under pressure and no exception for fast food segment. According to HK Census and Statistic Department, HK catering sales fell by 35% YoY in 3Q20, compared to 26%/ 33% decline in 2Q20/ 1Q20. Even though fast food was more resilient with 23% drop in sales, (vs 47%/ 31% decline for Chinese/ Non-Chinese restaurants), it still worsened from 21%/ 18% decline in 2Q20/ 1Q20.
- Hence we are expecting a soft 1H21E. We now expect the Group’s sales to fall by 16% YoY in 1H21E, which remained weak after a 14% decline in 2H20. We also forecast a 86% net profit growth for in 1H21E, mainly due to the tax free employment subsidies. But excluding that, we expect net losses of HK$ 42mn will be recorded in 1H21E, which just will marginally improve from net losses of HK$ 76mn in 2H20, aided by more active adjustment in staff costs and more short-tern rental reliefs from the landlords.
- HK market: easier comps and consolidations onwards. Despite the drags in Jul-Sep 2020, we are still optimistic on CDC in 2H21E, thanks to: 1) lower base due to social unrest last year, 2) further easing in social distancing rules, such as dine-in hours extension to midnight and max people per table increase from 4 to 6, and 3) further market consolidations during Dec-Mar 2020 as more smaller restaurants could go out of business once the employment aids expire by Nov 2020.
- China market: recovering healthily. We expect China sales to fall only by 3% YoY in 1H21E, improved from a 15% decrease in 2H20, far better than the 12% catering industry sales decline. Noted that its store expansion plan in China should remain intact, with 13 new stores or 11% growth in FY21E.
- Maintain BUY and cut TP to HK$ 18.37. We cut our EPS by 7%/ 16%/ 15% in FY21E/ 22E/ 23E, to factor a larger drop in SSSG but better subsidies. We maintain BUY and cut TP to HK$ 18.37 based on 24x FY3/22E (rolled over from 19x FY3/21E as we believe: 1) the worst should soon be over, 2) 3Q20 negatives are reasonable known and 3) industry leaders’ re-rating is likely as investors focus more on the positives from industry consolidation. It is trading at 21x FY3/22E, which is not demanding, vs 5 years avg. of 21x, in our view.
