We are confident that the worst is over for HK, and China will rebound strongly.We adjust our EPS by +4%/ -5% in FY21E/ 22E, maintain BUY and lifted TP toHK$ 19.07, based on 19x FY3/21E P/E unchanged, vs its 5 years avg. of 21x.
FY20 results inline with profit warning. FY3/20 net profit fell by 87% YoYto HK$ 74mn, inline with the pre-announced 85-90% and CMBIS est.’s 85%drop. Note that: 1) HK$ 57mn pandemic subsidies granted from HKgovernment was roughly offset by HK$ 42mn fair value losses of investmentproperty (HK$ 20mn gains last year) and 2) a HK$ 40mn one-off impairmentwas recorded due to change of accounting standard into IFRS 16.
CDC and fast food category outperformed. CDC’s fast food and casualdining sales declined by 12%/ 24% YoY during Oct 2019-Mar 2020, inlinewith/ outperformed HK fast food/ non-fast food sales drop of 11%/ 27%.
HK market: turn-around in sight, plus meaningful subsidies. We believethe worst is over, as 2H20 was absolutely devastating, given 1) drastic dropin store traffic during the COVID-19, and 2) absence of sales from universityand hospitals, etc, esp. when Asia Pacific catering had signed seven newcontracts in 2019. We are confident that customers traffic will be better in1H20E, thanks to 1) re-opening of stores, 2) resumption of schools since 27May, 3) minimal local cases, 4) shift of demand from high-end to massmarket and 5) better consumer sentiment with aids from government. Mostimportantly, CDC can receive a large scale one-off subsides (HK$ 57mn wasbooked in 2H20 and we raised our forecast to HK$ 243mn in FY21E).
Delivery business could be the driver. We believe CDC realizes theimportance of delivery business, esp. after the virus outbreak. It will carryout more store remodeling, in order to become more delivery and take awayfriendly. We estimate that delivery sales mix is only at single-digit, henceimplying huge potential. Cafe de Coral brand is now working with Foodpanda,while Mixian Sense and Shanghai Lao Lao Brand are already on Deliveroo.
China market: Likely a strong rebound. We expect China sales to growfaster than HK in FY20E, due to its greater delivery sales mix (its key partnerMeituan’s active users even jumped 6% YoY in 1Q20) and rapid storeexpansion. We forecast 15 new stores in FY21E (+13% YoY, vs 7% in FY20).
Maintain BUY and raised TP to HK$ 19.07. We adjust our EPS by +4%/ -5%in FY21E/ 22E, to factor in better subsidies but slightly slower SSSG. Wemaintain BUY and lifted TP to HK$ 19.07 based on 19x FY3/21E unchanged.As we believe the worst is over, its current valuation of 15x FY3/21E isattractive, vs 5 years avg. of 21x.