SUMMARY. FY19 NP growth was 29% YoY, strong beat on the back of costcontrol （11% if we excluded one-off items）。 We believe sales growth couldresume as store openings will accelerate （both CDC/ fast casual in HK/ China）and NP growth to stay fast, at 9%/9% in FY20E/21E, by rigid cost control. CDC’svaluation is undemanding at 19x FY20E P/E and 4.7% yield, hence we maintainBUY and raised TP to HK$ 26.61, based on 24x P/E, at its 5 years average.
FY19 strong beat aided by cost control and other income. CDC’s NPsurged by 29% YoY, 15%/14% above CMBI/ BBG’ est. despite a 1%revenue decline. The beat was due to: 1） menu re-engineering and ASPincreases （+1 dollar to HK$ 38.5）， hence raw material costs, as % of sales,down 1ppt to 27.5% in FY19, 2） impressive cost control on both labour andrental and 3） lower-than-expected other losses. Noted that, if we excludeone-off items （property fair value gains, less disposal and impairment lossesand shares base compensation）， adjusted pre-tax profit would still go up by11% YoY in FY19, a sign of turnaround after 3 years of profit decline.
HK: CDC focused on better margin while casual dining remainedstrong. We believe CDC HK’s SSSG was under pressure （CMBI est.: -2%）in 2H19 because of intensified competition. But HK market’s EBIT stillmanaged to go up by 13%, thanks to: 1） higher employees’ productivity fromnew incentive program and tech upgrades, 2） strong performance from fastcasual dining brands, with SSSG of ~MSD to DD and sales per store ofHK$ 15mn per year （+16% YoY）， plus 3） more closures of non-performingstores. We forecast sales/ EBIT growth to be 4%/ 6% in FY3/20E, by: 1）SSSG returned to flattish in Apr-May 2019, where launches of CDC mobileAPP （equipped with pre-order function） may help boosting traffic and 2） storeopenings （both CDC and fast casual） accelerate to ~ 20-30 （CMBI est. 15）。
China: CDC SSSG picked up again in 2H19. CDC China’s SSSGreaccelerated again （CMBI est. +4%） in 2H19, both delivery and eat-in recordedimprovements. With greater confidence in the market, management planned tospeed up its store openings in FY3/20E, ~20, in the greater bay region. Weforecast China market’s sales/ EBIT growth to be at 8%/ 9% in FY3/20E.
Maintain BUY and raised TP to HK$ 26.61. We maintain BUY on CDC aswe find its turnaround story in F19E-21E sustainable, plus an undemandingvaluation at 19x FY20E P/E, 1.3 s.d. below its 5 years avg. of 24x. Our newTP is based on 24x FY20E P/E （down from 25x as NP growth onwards mayslow after strong boost by other incomes in FY18）。 We raised FY20E/21E EPSby 15%/16%, to factor in 1） faster store expansion, 2） better cost control.