Company profile
Tam Tsai International is a leisure restaurant chain specializing in rice noodles in Hong Kong. Its brands include "Tam Tsai Yunnan Rice Noodle" and "Tam Tsai Sango Rice Noodle". Founded by their respective shareholders in 1996 and 2008 respectively, Donlido Hong Kong, a wholly owned subsidiary of Toridoll (3397 JP), which operates the world's largest Wudong chain, Marubeni Noodles and other brands, acquired and merged the two restaurant brands in 2018. After the completion of the acquisition, Tam Tsai International became wholly owned by Donlido Hong Kong, while the company continued to maintain a dual-brand operation. By the end of August 2021, the company operated a total of 156 restaurants, including 76 Tam Tsai restaurants and 74 Sam GE restaurants covering 18 districts in Hong Kong, Kowloon and the New Territories, 3 Tam Tsai restaurants in Shenzhen, mainland China and 3 Sam GE restaurants in Singapore. According to Euromonitor, in 2020, the company ranked first in the market segment of Asian noodle stores in Hong Kong by revenue, accounting for 64.4% of the market share, and ranked second in the Hong Kong fast leisure restaurant market with a 10% market share.
Sino-Thai viewpoint
The standardized business model is easy to replicate, and plans to open 160 new stores in the future, nearly half of which are concentrated in Hong Kong and mainland China: as a casual restaurant chain of rice noodles, the company has established a highly standardized and scalable business model, mainly reflected in: (1) standardized food handling procedures at the restaurant level. Ensure that the taste and quality of the food provided are consistent; (2) customized cooking equipment. With equipment suppliers to develop a variety of different cooking equipment to help kitchen staff more accurately control the cooking time or food ingredients; (3) the central kitchen. The company currently operates two central kitchens in Hong Kong and Singapore, which are responsible for handling soup bases, sauces, marinades and other ingredients to supply the kitchens of chain restaurants to ensure the quality and taste of the ingredients; (4) central procurement; and (5) standardize restaurant operation policies and procedures. Highly standardized processes and operating models make it easier for companies to expand their business and replicate to other new markets quickly and efficiently. The future company plans to open 160 new stores by the first quarter of 2024, mainly in Hong Kong, China (23.8%), the mainland (36.3%), Singapore, Japan and Australia.
Financial analysis: in the fiscal year 2019-2021, the company's realized income was HK $1.56 billion, HK $1.69 billion and HK $1.79 billion respectively, of which Tan Tsai and San GE respectively contributed half of their income by brand. If divided by order category, the proportion of eating out food was probably maintained at 70-80%. Affected by the epidemic in fiscal year 2021, the proportion of takeout revenue increased to 50%. The daily income of each restaurant is 41000 yuan, 40,000 yuan and 37000 yuan respectively; the average daily number of customers per restaurant is 772000, 695000 and 640000 respectively; the average daily turnover rate is 5.5,4.8,3.0 times; the gross profit margin of the company is 75.9%, 77.2% and 77.1% respectively; the staff cost accounts for 30.7%, 31.9% and 31.2% of the total income respectively Rental property expenses accounted for 18.8%, 19.6% and 20.9% of total income respectively; net profit margins were 12.7%, 11.3% and 16.1% respectively; operating cash flow was 540 million yuan, 570 million yuan and 700 million yuan; cash and cash equivalents were 300 million yuan, 300 million yuan and 460 million yuan at the end of the year.
Industry comparison and valuation level: we have selected nine restaurant chains as targets. Among them, the restaurant chain that focuses on the Hong Kong market has a forecast price-to-earnings ratio of about 13 times and a forecast price-to-sales ratio of about 0.7 times in 2021. The annual forecast price-to-earnings ratio of the industry as a whole is about 23 times, and the forecast price-to-sales ratio is about 2.2 times. The company's historical price-to-earnings ratio for 2020 is about 15.5-19.4 times. The company has a market capitalization of HK $45-5.6 billion based on 1.34 billion shares after the global public offering.
Sponsor's track record: the price stabilizer is Guotai Junan International. Since the beginning of 2020, he has participated in 5 sponsor projects, and the first day's performance has risen by 2 and fell by 2.
Cornerstone investors: in terms of cornerstone, three investors, Matthews, Southern Fund and Ruth Capital, have been introduced to subscribe a total of about HK $120 million, assuming that they are priced at the upper limit of the offering price range and have not exercised the over-allotment option, accounting for about 9 per cent of the offering shares.
Purchase advice: as a restaurant chain focusing on the local market in Hong Kong, the company's net profit margin has been maintained at about 15% in the past three years, and its profitability is much higher than the industry average. In the future, with its standardized business model, the company will open 160 new stores and expand and replicate to the local and non-Hong Kong markets. however, considering that nearly 20% of the new stores are still local, the number of local stores is close to 150, and the density of stores is not low. In addition, 40% of the stores are in mainland China, but the competition in the catering industry in the mainland is fierce, and consumers have many choices of tastes. New stores may face some challenges in the future. To sum up, it was given a score of 65, with a rating of "neutral".
Fund-raising purpose: assuming that the company does not exercise the over-allotment option in the end and that the offering price is HK $3.75 per share, raising about HK $1.18 billion, of which about 57.4% is used to expand the restaurant network; about 9.4% is used to expand the central kitchen in Hong Kong and to set up new central kitchens in mainland China, Singapore and Australia; about 10.5% is used to renovate restaurants and upgrade business equipment. About 5.1%, implement customer relationship management system, voice reservation system, enterprise resource planning system, and upgrade information and technology infrastructure; about 7.8%, for international brand building and new market entry promotion; about 9.8%, for general corporate purposes and working capital.
Risk tips: (1) consumer taste transfer risk, (2) industry competition risk, (3) new store expansion is not as expected.