The catering industry in Hong Kong was hit hard by the COVID-19pandemic in 1Q2020. Demonstrations in Hong Kong had severely impactedthe catering industry in 2H2019. Although public demonstrations have shownsigns of easing in 1Q2020, the recovering catering industry of Hong Kong washit hard again by the COVID-19 pandemic. The COVID-19 pandemic willcontinue to hurt the Hong Kong catering industry. Fast food restaurants areless affected than other catering business categories, but challenges from theever-changing external environment are unavoidable.
Mainland China’s catering is recovering slowly. The catering industry hasborne the brunt of the COVID-19 pandemic, and an industry reshuffle mayaccelerate. As China has effectively controlled the outbreak of the COVID-19pandemic, China's catering industry has been gradually recovering. But thetable turnover rate in most restaurants still remained low as consumers arestill afraid of going out due to imported cases. Café De Coral's revenue hasshown recovery as the working class maintains strong demand for fast food inShenzhen and Guangzhou.
Due to worse earnings forecasts, we lower our TP to HK$18.20. But due tohealthy financial position, loyal customer base and strong bargaining powerwith landlords, we expect that Cafe de Coral will outperform its peers in HongKong market. Moreover, the Hong Kong government's Anti-epidemic Fund willprovide Café de Coral with subsidies to counter the pandemic. Therefore, wemaintain "Accumulate" but lower TP to HK$18.20, which represents83.8x/29.3x/19.2x FY20/FY21/FY22 PER.