20220328-招银国际-海底捞-06862.HK-Reforms_on_track_but_pandemic_still_matters_6页_1mb

Haidilao (6862 HK) Company Update Summary

Core Content

• Company Overview: Haidilao is a leading Chinese restaurant chain with a focus on high-quality service and product innovation. The company is undergoing reforms aimed at improving product and service quality, which is expected to drive table turnover and overall performance.
• Stock Analysis: CMB International maintains a BUY rating, but has revised the target price (TP) to HK$15.59, a decrease from the previous TP of HK$21.56. The stock is currently trading at HK$13.36, which is at a premium compared to the 5-year historical average of 32x and China peers' average of 23x. However, it is still projected to have a 120% FY20-24E NP CAGR.
• Performance Highlights:
  • FY21 sales increased by 44% YoY to RMB 41.1bn, aligning with CMBI estimates.
  • However, the company reported a net loss of RMB 4.2bn, missing estimates by 7%, primarily due to lower gross profit margins and higher staff costs.
  • Table turnover decreased to 3.0x in FY21, down from 3.5x in FY20, while the average selling price (ASP) dropped to RMB 104.7.
  • The number of restaurants in mainland China increased by 10% YoY to 1,329, while overseas growth was 23% YoY to 114.
• Covid-19 Impact: The 1Q22E was affected by the outbreak, with sales recovery rates in Jan/Feb 2022 at 85% / 88%, higher than the previous year. However, lockdowns in Shanghai and Shenzhen may limit recovery to 50% - 60% in March 2022. CMBI has revised down FY22E net profit by 24% and FY23E by 5% to reflect these challenges.
• Woodpecker Programme: This initiative has led to improved staff morale and service levels, as well as better scores in internal quality assessments. Some stores and managers were also penalized during the process.
• Millennial and Gen Z Appeal: Haidilao has a strong presence among younger consumers, with ~50% of its customer base being millennials or Gen Z. The company plans to enhance engagement by focusing on the depth, plating, and creativity of its dishes.
• Management: The management team is relatively young, with the two new COOs being 36 and 38 years old, and over 160 restaurant managers being from the 95s generation, indicating an understanding of young consumer needs.

Key Financial Highlights

Valuation Comparison with Peers

Earnings Revisions

Financial Summary

Income Statement (YE 31 Dec)

Cash Flow Summary (YE 31 Dec)

Balance Sheet (YE 31 Dec)

Assumptions

Conclusion

Haidilao continues to implement reforms that are on track to improve product and service quality, but the ongoing impact of the pandemic still poses challenges. Despite the current stock price being at a premium, the company's growth prospects remain strong, with a projected 120% net profit CAGR from FY20 to FY24. The Woodpecker program has positively impacted staff morale and service quality, enhancing the company's appeal to younger demographics. Financial performance has shown signs of recovery, although net profit and EBIT margins are expected to face pressure due to higher staff costs and lower gross margins. The company is currently valued at HK$13.36, with a revised target price of HK$15.59 and an upside of 16.7%.