20221206-招银国际-大家乐集团-00341.HK-Light_at_the_end_of_the_tunnel_7页_1mb

Cafe De Coral (341 HK) Summary

Core Content

Cafe De Coral (341 HK) is a leading catering company in Hong Kong and China, with the report highlighting its recovery and growth potential in both markets. The report maintains a BUY rating but adjusts the target price to HK$15.12, reflecting a +18.9% upside from the current price of HK$12.72.

Main Points

• HK Market Performance:

  • Sales in the HK market increased by 0.5% YoY in 1H9/23, outperforming the -1.8% decline in HK catering sales.
  • The company is expected to grow by ~14% in 2H3/23E, driven by a low base in 2021 and improved offerings.
  • Institutional catering is anticipated to recover as social distancing measures are lifted in schools and hospitals.

• China Market Performance:

  • Sales in the China market grew by 1.6% YoY in 1H9/23, significantly outperforming the -7% drop in China catering sales.
  • Despite a -5% decline in SSS (Same Store Sales) in November 2022, EBIT margins improved to 11.3% in 1H9/23, compared to 9.8% in 1H9/22, due to the ramp-up of new stores in southern China.

• Margin Improvements:

  • Margins are expected to continue improving in 2H3/23E, supported by an ASP hike of at least HK$1 and a reduction in rental expenses due to a weak economy and higher shop vacancies.
  • The minimum wage increase to HK$40 in 2023 is expected to be offset by CDC's ability to retain staff.

• Store Expansion:

  • Store openings slowed in 2H3/23E, but the company is expected to maintain a flat number of net openings in FY3/24E.
  • CDC opened 11/10 new stores in HK and China in 1H23, and now expects 15/15 net openings in 2H3/23E.

• Earnings Estimates:

  • The report has revised EPS estimates downward by 42%, 12%, and 7% for FY23E, FY24E, and FY25E, respectively, to reflect the slower sales recovery and reduced store expansion.
  • Target Price is adjusted to HK$15.12, based on a 22x FY3/24E P/E, compared to a previous 20x and the 5-year average of 20x.

Key Information

• Valuation:

  • The company is currently trading at 19x FY3/24E P/E, which is considered not too demanding.
  • P/E valuation band and peers' valuation are provided, showing CDC's valuation relative to other companies in the catering and food sector.

• Earnings Summary:

  • Revenue is projected to grow from HK$6,714.3 mn (FY21A) to HK$9,797.2 mn (FY25E).
  • Net income is expected to increase from HK$359.1 mn (FY21A) to HK$485.1 mn (FY25E).
  • EPS is forecasted to rise from HK$0.62 (FY21A) to HK$0.84 (FY25E).

• Financial Summary:

  • Operating cash flow is projected to grow from HK$1,693 mn (FY21A) to HK$1,061 mn (FY25E).
  • Net cash from investing activities is expected to increase from -HK$273 mn (FY21A) to -HK$336 mn (FY25E).
  • Net cash from financing activities is projected to decrease from -HK$891 mn (FY21A) to -HK$1,101 mn (FY25E).

• Balance Sheet:

  • Total net assets are expected to increase from HK$3,029 mn (FY21A) to HK$3,413 mn (FY25E).
  • Shareholders' equity is projected to grow from HK$3,029 mn (FY21A) to HK$3,413 mn (FY25E).
  • Cash and cash equivalents at the end of the year are forecasted to increase from HK$2,073 mn (FY21A) to HK$2,718 mn (FY25E).

• Key Ratios:

  • Gross margin is expected to increase from 5.6% (FY21A) to 12.4% (FY25E).
  • Operating margin is projected to rise from 7.1% (FY21A) to 6.7% (FY25E).
  • Net margin is expected to increase from 5.3% (FY21A) to 5.0% (FY25E).
  • Current ratio and Quick ratio are stable, with current ratio at 0.7 and Quick ratio at 1.3 in FY23E.

Conclusion

Cafe De Coral is showing signs of recovery in both the Hong Kong and China markets, with strong margin improvements and a cautious optimism about future growth. Despite challenges like weak economic growth and outbreaks, the company is expected to return to growth in 2H3/23E, supported by strategic initiatives and a slowdown in store openings. The updated BUY rating and adjusted target price reflect the firm's belief that the worst is behind the company, and that it is well-positioned for future performance.