The results for the first half of FY2022 are in line with previous earnings warnings. Dai Lok's revenue for the first half of fiscal year 2022 increased 20.0% year over year to HK$3.870 billion, with revenue from Hong Kong business and mainland business increasing 19.7% and 21.2%, respectively. The company's gross profit margin increased 5.5 percentage points year over year to 9.8% in the first half of fiscal year 2022. Including HK$339 million in government grants received in the first half of FY2021, net shareholder profit for the first half of FY2022 fell 50.0% year-on-year to HK$81 million.

We lowered our profit forecast for FY2022 to FY2024 by 23.7%, 13.6%, and 4.1%, mainly based on: i) we raised the raw material and packaging cost rate and employee cost ratio assumptions because some raw material prices were still high and employee costs increased in the overall economic recovery (partly offset by higher customer unit prices); ii) Considering that the company did not receive any COVID-related government subsidies in the first half of FY2022, we drastically lowered our other income assumptions.

Maintaining the “collection” rating, the target price was lowered to HK$17.50. Considering expectations for effective control of COVID-19 infections in the mainland and Hong Kong without quarantine and customs clearance, we expect that as long as the Hong Kong government maintains its strict anti-epidemic measures and maintains no reports of local cases of COVID-19 infection, everyone is happy that Hong Kong's business will continue to recover. Meanwhile, we expect same-store sales growth in mainland restaurants to normalize in the second half of fiscal year 2022. Our target price is equivalent to 38.6 times, 25.9 times, and 17.8 times price-earnings ratios from FY2022 to FY2024.