We are confident that CDC to take more market shares amid the pandemic. Theworst should soon be over for HK and China sales should rebound strongly.
However, latest industry data suggested SSSG drag is greater than our estimates,therefore, we cut our EPS by 7%/ 16%/ 15% in FY21E/ 22E/ 23E. Maintain BUYand cut TP to HK$ 18.37, based on 24x FY3/22E P/E （rolled over from 19xFY3/21E, re-rating for leaders is likely thru shares gain）， vs its 5 years avg. of 21x.
HK catering is still under pressure and no exception for fast foodsegment. According to HK Census and Statistic Department, HK cateringsales fell by 35% YoY in 3Q20, compared to 26%/ 33% decline in 2Q20/1Q20. Even though fast food was more resilient with 23% drop in sales, （vs47%/ 31% decline for Chinese/ Non-Chinese restaurants）， it still worsenedfrom 21%/ 18% decline in 2Q20/ 1Q20.
Hence we are expecting a soft 1H21E. We now expect the Group’s salesto fall by 16% YoY in 1H21E, which remained weak after a 14% decline in2H20. We also forecast a 86% net profit growth for in 1H21E, mainly due tothe tax free employment subsidies. But excluding that, we expect net lossesof HK$ 42mn will be recorded in 1H21E, which just will marginally improvefrom net losses of HK$ 76mn in 2H20, aided by more active adjustment instaff costs and more short-tern rental reliefs from the landlords.
HK market: easier comps and consolidations onwards. Despite thedrags in Jul-Sep 2020, we are still optimistic on CDC in 2H21E, thanks to: 1）lower base due to social unrest last year, 2） further easing in socialdistancing rules, such as dine-in hours extension to midnight and maxpeople per table increase from 4 to 6, and 3） further market consolidationsduring Dec-Mar 2020 as more smaller restaurants could go out of businessonce the employment aids expire by Nov 2020.
China market: recovering healthily. We expect China sales to fall only by3% YoY in 1H21E, improved from a 15% decrease in 2H20, far better thanthe 12% catering industry sales decline. Noted that its store expansion planin China should remain intact, with 13 new stores or 11% growth in FY21E.
Maintain BUY and cut TP to HK$ 18.37. We cut our EPS by 7%/ 16%/ 15%in FY21E/ 22E/ 23E, to factor a larger drop in SSSG but better subsidies. Wemaintain BUY and cut TP to HK$ 18.37 based on 24x FY3/22E （rolled overfrom 19x FY3/21E as we believe: 1） the worst should soon be over, 2） 3Q20negatives are reasonable known and 3） industry leaders’ re-rating is likely asinvestors focus more on the positives from industry consolidation. It is tradingat 21x FY3/22E, which is not demanding, vs 5 years avg. of 21x, in our view.