FY24 results were a small beat, mainly from the robust GP margin expansion. Going into FY25E, though the SSSG may be only be stable, we are confident on a mild turnaround, driven by potential store expansion acceleration and margin expansion (better input costs, more efficient supply chain and greater adoption of multi-store management, etc.). Maintain BUY and raise TP to HK$ 20.20, based on 18x FY25E P/E (up from 16x, due to faster expansion and sector re-rating). Also, we see limited downside given 6% FY25E dividend yield.
Store expansion in FY25E may accelerate. Haidilao opened 59 self- owned stores and 3 franchise stores in FY24; however, due to the closures of 70 stores at the same time, it recorded a net decrease of 19 stores, slightly greater than we had expected. However, we believe the trend will likely improve in FY25E. While management maintained the soft store opening guideline (MSD increase in store count, around 60-70), the number of closures may be smaller (CMBI est. around 20), and therefore the net increase in FY25E may be at 40, equivalent to about 3% YoY growth. And what’s more important, in our view, is the “Red Guava” project, which aims to encourage the current Haidilao store managers to open more new restaurants under another brand. As at FY24, there were already 74 stores under 11 new brands, and 3 to 4 more new brands may be introduced in 1H25E, according to management. We believe the foundation (setting up the appropriate incentive system, the supply chain and the site selection ability, etc.) was successfully built in FY24, and it is possible for the new brands to speed up their store expansion. Out of those brands, the Yan Qing BBQ restaurant has outperformed, where the monthly sales per store can reach over RMB 800K and most of the 40 stores have managed to achieve breakeven already.
A brighter future can be expected in FY25E, but mostly thanks to margin expansion. While we think store expansion may accelerate, we also believe SSSG may stay mildly positive (even though SSS dropped by LSD in Jan-Feb 2025), supported by a turnaround in ASP (prices of certain items have been raised since 4Q24; discounts and product mix should also improve) and a stable improvement in table turnover to around 4.1x to 4.2x (aided by a decent rebound in table turnover for the newly opened stores). Margin-wise, we expect the GP margin to be at least stable (aided by further improvement in supply chain capability and more lockup in input prices) and the OP margin to improve, due to various improvements in staff costs, such as the adoption of more multi-store management (121 store managers are managing more than 1 store and the grades of those stores continued to improve in FY24) and the greater use of digitalization and AI (to have better staff scheduling or productivity, etc.). All in all, we are now forecasting a 4% sales growth and a 10% net profit growth in FY25E.
Maintain BUY and raise TP to HK$ 20.20. We cut our FY25E/ 26E net profit forecast by 10%/ 14%, in order to factor in the greater-than-expected store closures and a more conservative SSSG, but much better-than-expected GP margin. While the stock is undemanding (16x FY25E P/E) and protected by the 6% FY25E yield, we believe Haidilao may experience a speed-up in store expansion (sales and net profit growth may follow) and a potential re-rating is possible. Hence we maintain BUY with TP of HK$ 20.20, based on 18x FY25E P/E.
FY24 results were a slight beat, driven by GP margin expansion. In FY24, Haidilao’s sales increased by 3% YoY to RMB 42.8bn, missing BBG/ CMBI est. by 4%/ 10%, mainly because of the greater-than-expected store closures (esp. in the higher-tier cities). However, net profit climbed by 5% YoY to RMB 4.7bn, beating BBG/ CMBI est. by 4%/ 2%, thanks to the stronger-than-expected GP margin expansion, to 62% (vs CMBI est. of 60%), a result of refined input costs, and further standardization and efficiency gains in the supply chain. Dividend is another bright spot, where the payout ratio was as high as 95% in FY24. Therefore, the current yield is at about 5 %, and the downside is protected to some extent, in our view.