Maintain BUY and raised TP to HK$ 40.07, based on 15x FY22E P/E for JMJ and 1.1x FY19-25E PEG for Tai Er (unchanged). We believe sales per store for both JMJ and Tai Er to gradually recover and can enjoy better GP margin and operating leverage. Therefore, Jiumaojiu remain our top pick in the catering sector. Current valuation of 46x FY22E P/E and 0.7x PEG (vs industry average at 32x) in our view, is still attractive, given a 66% FY20-22E EPS CAGR.
- FY20 results strong beat. Jiumaojiu net profit dropped by 25% YoY to RMB 124mn, 210%/ 310% beat over BBG/ CMBI est., due to: 1) stronger than expected sales per store and ASP increase for JMJ and Tai Er, 2) better than expected GP margin, at 61.5% (vs CMBI est. of 60.4%) and 3) related operating leverage. Noted if we exclude VAT exemptions of RMB 48mn, the adjusted net profit would be at RMB 70mn, which is still a strong beat.
- Impressive recovery in 2H20. Sales per store (for a 6-month period) for JMJ/ Tai Er recovered to RMB 4.7mn/ 5.5mn in 2H20, only 2%/ 5% lower vs 2H19, supported by both ASP increase and robust delivery sales growth. Sales growth is particularly impressive for Tai Er, given rapid new store expansion. As a result, OP margin for JMJ/ Tai Er improved to 16.6%/ 20.5%, very close to 17.7%/ 21.5% in FY19.
- Positive outlook for FY21E and onwards. Recovery momentum sustained into Jan-Feb 2021, as dine-in table turnover for JMJ and Tai Er remained strong at 1.7x/ 2.3x and 3.7x/ 4.3x in Jan/ Feb 2021, comparing to 2.1x and 4.3x in 2H20, while delivery sales mix stayed similar at 11-12% and 20-23%. For FY21E and onwards, we are even more positive on GP margin (1-2ppt boost from improved supply chain and sourcing power), and OP margin (more favorable rental contracts signed, ~15% discount vs pre-crisis level, further expansion to lower tier cities with lower opex, etc.). Management believed NP margin of 12-15%/ 3-6% for JMJ/ Tai Er is healthy in the mid run. Refinement of Song hotpot’s business model may take another year, but 4-9 stores may be opened in FY21E in the top tier shopping malls.
- Maintain BUY and raised TP to HK$ 40.07. We revised up FY21E/ 22E EPS estimates by 2%/ 2%, to factor in:1) slightly slower recovery of table turnover, but 2) better GP margin, opex and tax rate. We maintain BUY and lifted TP to HK$ 40.07, based on 15x FY22E P/E for JMJ and 1.1x FY19-25E PEG for Tai Er (unchanged and implying ~64x FY22E P/E). Current valuation is not demanding at 46x FY22E P/E given a 62% FY20-22E EPS CAGR.
