Waiting for new initiatives to shine,with yields

海底捞(06862)\r

Haidilao’s1H24results were roughly inline,but the margin was soft,given themeaningful SSSG.Going into2H24E,we can still see certain pressure likedrags from macro environment,high base for SSSG and staff costs inflation etc.In our view,the extra upside could be from the acceleration in new storesopening,further plans to boost efficiency and new brands’development.Giventhe low valuation and attractive dividend,we maintain BUY.\r

Cautiously optimistic about2H24E,extra upside could be from newstores opening or new CEO’s initiatives to push margins and multi-brands.We have to give credit to Haidilao,as its SSS recovery rate hadgreatly outperformed the catering industry,thanks to its:superiority incustomer services,members management,new product launches,marketing and advertising on social media,etc..But going into2H24E,wecan see a number of challenges,such as the high base for SSSG(tableturnover was actually flattish YoY in Jul2024while the ASP should be stableand therefore,we are now forecasting0%to5%SSSG in2H24E)andhence limited the operating leverage(i.e.staff costs may stay high).Thisassumption is based on the already larger scale of advertising(e.g.crossover with IPs,)along with the new product launches in the autumn andwinter seasons.We do expect benefits from1H24such as GP marginimprovements and declining D&A expenses(as more and more restaurantshave fully depreciated its original capex)to continue.And in our view,theadditional upside(or segmental improvements)vs1H24could lay on:1)potential acceleration in store numbers,where the Company is still targetinga MSD%increase(unlike a decline in1H24),2)further marginimprovements from new initiatives to boost employee’s creativity,motivationand costs savings,such as the sharing of store managers around stores,etc,3)the“Red pomegranate”project,a multi-brand development strategywhich is highly important for Haidilao’s future growth.A new team was setup to optimize the incentive policies,encourage national leaders andprovide the necessary resources to participate in new brand management.There are four brands under the incubation stage and its Yanqing BarbecueShop brand already has a rough plan to open400to500stores in aroundthree years.\r

Maintain BUY but trim TP to HK$15.94,based on16x FY24E P/E(cutfrom20x to factor in the slowdown in net profit growth and sector de-rating).We fine-tuned our FY24E/25E/26E net profit forecasts by-7%/-1%/+4%to factor in higher staff costs,but better GP margins(from low input costs,more bulk or direct purchases,more higher margin new products etc.).Thestock is trading at15x FY24E P/E,not too demanding,especially when wealso consider the6%dividend yield.\r

Source:Company data,Bloomberg,CMBIGM estimates\r

MORE REPORTS FROM BLOOMBERG:RESP CMBROR http://www.cmbi.com.hk\r

1H24results roughly inline.Haidilao’s sales increased by14%YoYwith BBG est.while net profit dropped by10%YoY,missing BBGa miss,in our view,is mainly due to higher-than-expected staffshortage back in1H23,while it was ample in1H24),more than offsettingof a beat in GP margin(mainly driven by greater use of discountingdrop in ticket size given the recent tendency to trade down).SSSG15%in1H24,which was driven by an around27%increase in4.2x,from3.3x in1H23)and a roughly5%drop in ASP(to RMB102.9in1H23).Even though SSSG was strong,the operating leverageas staff costs and rent expenses were rather variable.On the othercould still manage to increase to61%(from59%in1H23)whilewhich was aided by the continuous decrease in procurement costs,supply chain efficiency,plus the changes in menu items.Noted thatof HK$0.391was also declared in1H24,representing a95%payoutabout2.9%of the current market cap(or5.9%if we annualized).