1H25 results were weak but the negatives should have already priced in. We expect SSS to likely stabilize in 2H25E, with the support of different company specific initiatives. We also believe that a potential turnaround could happen, especially when the store expansion and new brands development start to accelerate.
We are cautiously optimistic about the outlook in 2H25E. Even though the macro environment may still be under pressure and industry competition may stay intense, we can still see a few positives and company specific initiatives ahead, namely: 1) potentially more policy support from the government to further boost consumption, 2) SSS (so as the table turnover and recovery rate) decline have stabilized in 2Q25 and started to improve in Jul 2025 (we are forecasting just -1% to flattish SSSG in 2H25E), 3) various store revamps (into different themed stores), 30 stores were already transformed to cater for the late night dining, where many late night snacks will be sold, the same store sales could be boosted by 10% to 20% accordingly, other themes like kids & families friendly and pet friendly will also be introduced, these will all be helpful for boosting the SSSG, 4) different upgrade around the products, for example, more fresh slaughter meat or fresh seafood are being offered in about 50 stores already and more localized dishes (around 60 to 80 per month on a national-wide basis) will be offered as well, and 5) speeding up of the delivery business development, and the Company has installed more advance equipment in the restaurant to accelerate the production to ensure the food quality of delivery products, and it has started to sell more Maocai (a spicy stew based on the hotpot ingredients and soup base) with rice which is very hot-selling.
Store expansion may still accelerate, in our view, esp. when the growth of new brands is being facilitated. The number of self-operated hotpot restaurants has dropped HoH in 1H25, perhaps due to the lower-than- expected table turnover. However, aided by different measures mentioned above, we believe the table turnover should likely improve in 2H25E and the number of closures will be stabilized. And on the other hand, the number of franchised hotpot restaurants should speed up with ease, thanks to less resources required (and the Company will also use the mentorship strategy when opening a new franchised stores, where a new store will usually be close to an old store and the training can be done closely). Hence, we do think the management’s guidance of MSD % of store count increase in FY25E is still achievable. Moreover, Haidilao has also lowered the threshold of building a new brand. For instance, all stores ranked D or above are qualified for new brands development. Also, the founders of that new brand will be given a greater level of freedom to form their team and strategy. Moreover, the “Red Pomegranate” programme is now opened for external talents or brands for more co-developments.