20230309-招银国际-呷哺呷哺-00520.HK-Dragged_by_4Q22_but_FY23E_outlook_still_bright_9页_1mb

Xiabu Xiabu Catering (520 HK) Summary

Core Content

Xiabu Xiabu Catering (520 HK), or XBXB, issued a profit warning for FY22E, with sales declining by 23% YoY to RMB 4.7bn and net losses reaching RMB 320mn-340mn, significantly higher than the estimated RMB 280mn for FY21. This was attributed to the temporary suspension of dine-in services and operating deleverage due to the pandemic. However, the company showed significant improvement in the second half of 2022 (2H22E), with net losses narrowing to RMB 42mn-62mn, indicating a strong recovery. The rebound in 2023 YTD was also notable, with sales growth reaching 63.3% YoY, and net profit forecast at RMB 403mn for FY23E.

Key Points

• Sales Decline in FY22E:

  • Sales fell by 23% YoY to RMB 4.7bn, below BBG/CMBI estimates.
  • The decline was primarily due to reduced operating days and pandemic-related restrictions.
  • The drag was most pronounced in November and December 2022, with SSSG for XBXB at -27% to -55% and for Cou Cou at -20% to -55%, worse than the average of -17% and -14% during July to October 2022.

• Reforms and Cost Control:

  • The company implemented reforms that improved operational efficiency.
  • Staff costs were reduced, and the gross margin improved to 62.9% in FY23E.
  • Net margin improved significantly to -2.6% in 2H22E, from -12.8% in 1H22, thanks to in-house meat processing and cost control measures.

• Rebound in 2023:

  • Sales rebounded strongly in 2023 YTD, with SSSG improving to 36% for XBXB and 7% for Cou Cou.
  • The Hong Kong segment also showed a meaningful turnaround, with Shao Hot's table turnover increasing from 3.0x in January 2023 to 4.2x in February 2023.
  • The company's seat and table turnover improved compared to the previous year.

• Financial Performance:

  • Net profit for FY23E is forecasted at RMB 403mn, with a 217% YoY growth.
  • The company maintains a BUY rating, with a target price of HK$11.20, which is a 42.7% upside from the current price of HK$7.85.
  • The P/E ratio for FY23E is 19x, while the P/S ratio is 1.0x, both lower than the industry average of 32x and 2.1x respectively.

Valuation and Market Position

• Valuation Metrics:

  • The company is valued using a SOTP approach, with a target price of HK$11.20.
  • The P/E ratio for FY23E is 18.9x, and for FY24E is 11.7x.
  • The P/B ratio is 3.7x for FY23E and 2.9x for FY24E.
  • The yield is 1.9% for FY23E and 3.4% for FY24E.

• Peer Comparison:

  • XBXB's valuation is lower than the industry average P/E of 22.2x for FY21 and 31.9x for FY23.
  • The company's 12-month forward P/E is within the band of peers, indicating it is relatively undervalued.

Strategic Outlook

• Sales Growth Projections:

  • XBXB is expected to grow sales by 59% in FY23E and 19% in FY24E.
  • Cou Cou is projected to grow sales by 78% in FY23E and 33% in FY24E.

• Restaurant Growth:

  • The total number of restaurants is expected to increase by 18% in FY23E and 14% in FY24E.
  • XBXB's restaurant count is projected to grow by 12% in FY23E, while Cou Cou's is expected to increase by 21%.

• Operational Metrics:

  • Seat turnover for XBXB is expected to improve to 2.3x in FY23E, compared to 1.6x in FY21.
  • Sales per store for XBXB are forecasted to grow by 39% in FY23E, and for Cou Cou by 37% in FY23E.

Conclusion

Xiabu Xiabu Catering (520 HK) experienced a significant sales decline in FY22E due to pandemic-related restrictions, but showed strong recovery in 2H22E and 2023 YTD. The company's reforms and cost control measures have led to improved gross and net margins. Despite the sales miss, the FY23E outlook remains positive, with strong growth in both sales and restaurant numbers. The company is currently trading at a discount compared to the industry average, making it an attractive investment opportunity.