20171102-招银国际-合兴集团-00047.HK-2018_outlook_remains_positive,_a_bargain_in_the_sector_4页_756kb

Hop Hing (47 HK) 2018 Outlook Summary

Core Content

Hop Hing Group Holdings Ltd is a leading Quick Service Restaurant (QSR) operator in the Northeast region of China. The company operates under several licensed and self-owned brands, including "Yoshinoya/吉野家", "Dairy Queen/冰雪皇后", and "Chatting/茶町叮", "Uncle Fong/芳叔", with a total of 502 stores as of 3Q17. The company's performance and outlook for 2018 are positive, with a focus on growth and profitability.

Main Points

• Same Store Sales Growth (SSSG):
  Hop Hing reported a 4.0% SSSG in 3Q17, similar to 5.0% in 2Q17 and 4.7% in 1Q17. This growth is attributed to industry recovery, increased O2O/delivery orders, and self-driven initiatives.

• Industry Trends:
  The QSR industry in China is showing positive momentum, with O2O/delivery segment growing by 23.1% in 2017. Hop Hing has been a leader in this recovery, turning around performance ahead of its peers by over two quarters.

• Store Growth and Expansion:
  Store additions in the Northeast region have accelerated, with a 14% growth rate in 9M17, compared to 3.9% in Beijing, Tianjin, and Hebei. This suggests stronger fundamentals in the Northeast and potential for further network expansion.

• Profitability Factors:
  Hop Hing benefits from operating its own delivery team, which helps in maintaining profitability. The company also continues to upgrade its store formats to more efficient and stylish third and fourth generation "Yoshinoya" designs, which cover over 40% of its total stores by 1H17.

• Financial Performance:
  Hop Hing has shown consistent growth in net income and adjusted EPS over the past few years. For FY17E, it is expected to report a net profit growth of 38%, and for FY18E, a 16% growth.

• Valuation Metrics:
  The company's current PE ratio is 13x for FY17E and 11x for FY18E, which are among the lowest in the sector. Its yield is at 4%, making it an attractive option for income-focused investors. In comparison, peers like Yum China (YUMC US) have a PE of 28x, Ajisen (538 HK) at 17x, and XBXB (520 HK) at 25x.

Key Information

• Market Position:
  Hop Hing is considered one of the most underrated plays in the QSR sector, with a strong presence in the Northeast region of China.

• PE Ratio and Yield:
  Hop Hing's current PE ratio is 13x for FY17E and 11x for FY18E, significantly lower than its peers. Its yield is at 4%, offering a good return for investors.

• CMBIS Ratings:
  Hop Hing is rated as a BUY, indicating potential for a return of over 15% in the next 12 months.

• Investor Disclosures:
  The report is provided by CMB International Securities Limited, a wholly owned subsidiary of China Merchants Bank. It includes disclaimers and disclosures regarding the risks and limitations of the information provided.

Summary Table

Shareholding and Performance

• Shareholding Structure:

  • Hung Family: 35.54%
  • Arisaig Partners (Asia): 9.74%
  • Free Float: 54.72%

• Share Performance:

  • 1-month: 5.5%
  • 3-month: 2.2%
  • 6-month: -7.6%

Conclusion

Hop Hing is a promising investment opportunity in the QSR sector, with a strong regional presence, positive growth trends, and attractive valuation metrics. Its current PE ratio and yield make it a compelling buy, especially in comparison to its peers. The company's strategic initiatives and efficient operations further support its growth potential in the coming year.