Guoxin Securities: Consumer promotion policies followed one after another, leading high-efficiency preferred restaurant chains

The Zhitong Finance App learned that Guoxin Securities released a research report saying that in the first half of 2024, the operating performance of catering sector companies was under pressure, but some leading catering companies with strong supply chain bases and strong brand consumption stickiness still had a comparative advantage and recorded good alpha growth. Considering the recent frequent consumer promotion mix, the restaurant sector is expected to benefit from both fundamentals and sector sentiment, taking into account the certainty of business performance and the expectation of a gradual recovery in the consumer environment. Maintain the sector's “better than the market” rating.

Guoxin Securities's main views are as follows:

Restaurant chain industry: the sinking urban sector is the backbone of industry growth, and cost reduction and efficiency have become a core issue

On the revenue side, data from the National Bureau of Statistics shows that since March 2024, the year-on-year growth rate of food and beverage revenue has declined month by month. As of August 2024, the cumulative year-on-year growth rate of food and beverage revenue is still ahead of the total growth rate of social zero, and the catering industry has shown some resilience. By enterprise type, the revenue growth rate of catering companies above the limit (annual revenue of 2 million yuan or more) is falling faster. It is expected that they will accept more dining scenarios that are greatly affected by the macro environment, such as business banquets and family gatherings. Looking at the city hierarchy, first-tier cities Beijing and Shenzhen have been hit even more clearly. Beijing's cumulative revenue growth rate since March 2024 turned negative year-on-year, while new first-tier cities such as Chongqing and Chengdu bucked the trend and continued to grow, and sinking cities became the backbone of growth.

On the profit side, data from the Beijing Bureau of Statistics shows that in January-March 2024, corporate catering lost 454 million yuan, but since March 2024, monthly profit turned a loss into a profit, showing a positive trend. From January to August 2024, the total catering profit of legal entities was 750 million yuan. The year-on-year decline of -72% continued to narrow, and the effects of catering companies reducing costs and increasing efficiency gradually became apparent. Looking forward to the future, in the current consumption environment, sinking urban expansion+layout to a cost-effective price range (21-40 yuan) is expected to remain the future driving direction of the industry.

Sector trend review

Factors such as same-store data pressure and low price competition in the industry were disrupted. From the beginning of the year to September 24, the A+H restaurant sector declined. Only some leading catering companies, Te Hai International (stock price rose +31%) and Haidilao (+9%), etc., relied on brand power, cost control and efficiency gains. Since September 24, domestic consumer promotion policy combinations have been introduced one after another, and the restaurant sector has rebounded strongly. Leading companies such as Haidilao and Yum Sheng China also achieved significant gains.

Three major trends for listed restaurant chains in 2024

1) Same-store sales are generally under pressure to improve the cost performance ratio of products to break the game. In the first half of 2024, same-store sales of brands generally declined under pressure, falling between 4-43%. Only a few brands, such as Haidilao, continued to grow. Under pressure from the same store, restaurant chains all chose to increase discounts or launch new products at lower prices to boost customer flow (customer unit prices generally decreased by 5-10% year-on-year). After the launch of the initiative, sales at the same store of Haidilao and KFC recovered marginally.

2) The expansion strategy is prudent, with leading brands leveraging franchisees. 2020-2023 is a period of rapid horse-racing for listed restaurant chains, but by 2024, the pace of brand store expansion gradually became cautious, and some brands lowered their annual expansion plans. Leading brands are also gradually starting a franchise model. Helen's (2023.06), Nai Xue's Tea (2023.07), Taiji (2024.02), and Haidilao (2024.03) have announced that they are open to join.

3) Sector valuations are at the bottom of history, and listed companies have increased their repurchase dividends. However, from the perspective of PE-BAND, the valuation level of listed restaurant chains is still at the bottom of history. Since 2024, Hong Kong-listed catering companies have stepped up their repurchase efforts. Since 2024, Yum China, Jiumaojiu, and Nai Xue's tea have each repurchased more than 7.3%/2.8%/0.6% of the total share capital. In addition, some companies have also increased their dividend ratio, increasing the company's investment cost performance ratio.

Target aspect: The short-term proposal focuses on leading companies with high operational certainty, Haidilao (06862) and Yum Sheng China (09987). At the same time, it is also recommended to deploy local lifestyle service leaders Meituan-W (03690) (takeout and store delivery work together, Meituan takeout stores become a new addition to the industry); if follow-up policies continue to strengthen and observe a substantial improvement in the fundamentals of catering operations, the simultaneous recommendation focuses on Jiumaojiu (09922), Tongqinglou (605108.SH), and Guangzhou restaurants (603043.SH), Helen's (09869), Nai Xue's Tea (02150), and Xiabuxiabu (00520) are rebounding opportunities for individual stocks that have surpassed the decline.

Risk warning: Systemic risks such as macropolitical economy, increased industry competition, lower than expected incubation of new brands, brand aging, and food safety issues.