Haidilao International may have reported a net loss of RMB965 million ($191.5 million) in 1H20 due to the impact of the Covid-19 pandemic, but UOB Kay Hian is positive on the China hotpot chain’s results for FY20 on the back of its 173 new store openings in 1H20.
Of the 173 restaurants, 158 stores were opened in mainland China. The total number of restaurants stood at 935 as at end June, from 768 and 593 outlets as at end 2019, and end June 2019, respectively.
Haidilao on August 25 reported a 16.5% y-o-y decline in its revenue to RMB9.76 billion for the 1H20 ended June. Gross profit fell 20.3% y-o-y to RMB5.41 billion, while gross profit margin fell 2.6 percentage points y-o-y to 55.5%. Its overall operating expenses increased 15% y-o-y as the company has not suspended its new store openings, and its expenditures are mostly rigid.
Delivery business revenue, however, surged 123.7% y-o-y to RMB409.6 million primarily due to an increase in the number of delivery orders, possibly due to the lockdowns.
While Haidilao has not given specific guidance on its new store openings for 2020, UOB Kay Hian says it expects “strong traction” in the chain’s new store openings.
“Haidilao mentioned that it has 414 new stores in the pipeline as of end June, and the number of new stores under renovation would surpass 400 by October,” says UOB Kay Hian in a report dated August 27.
“It stated that the decision on opening a new store is decided by its front line employees but not the senior management based on several criteria, such as sufficient qualified store managers and staffs, and proper locations for the new stores.”
The company is accelerating restaurant openings in low-tier cities as it has tapped into 31 new cities in mainland China with most of them being tier-3 cities.
“We concur with the management that the cumulative new store openings would reach >1,000 over the next 2-3 years based on 302 net new store openings in 2019; the effective management and strong supply chain; sufficient cash balance and RMB2.2 billion of unused bank credit without pledges; and the popularity of hotpot in China,” it adds.
For 1H20, table turnover rate in tier-3 cities and below reached 3.6, followed by 3.5 in tier-2 cities and 3.0 in tier-1 cities. On the same-store side, tier-3 cities also saw the highest table turnover rate at 4.1 in 1H20, followed by 3.8 in tier 2 cities and 3.4 in tier 1 cities, noted the brokerage.
Since the easing of lockdown measures, Haidilao says that its overall table turnover rate has recovered to 4.1 in August compared to 5.1 in August 2019.
“We expect the strict quarantine measures in some of the cities to ease over the next few months, which should further benefit the operations of restaurants. Outside mainland China, Haidilao highlighted that table turnover rate has recovered to 3.6, 4.2, and 4.3 in Singapore, Malaysia, and Vietnam respectively in July,” says UOB Kay Hian.
As such, the brokerage has cut its 2020 earnings forecast by 19.8% to reflect the lower gross profit margin, but it has raised its forecast for 2021 and 2022 by 3.1% and 3.4% respectively to factor in the new store openings.
UOB Kay Hian has also maintained “buy” on the stock, with an increased target price of HK$52.10 ($9.14) from HK$38.90 previously.
As at 4.05pm, shares in Haidilao are trading 6.9% up at HK$53.45.
