Tam Tsai International Limited ("the Company") is a leading and well-known chain catering operator, which operates "Tan Tsai Yunnan Rice Noodle" in Hong Kong.

And "Tam Tsai Sango Rice Noodle" brand fast leisure restaurant chain, also has operations in mainland China, Singapore and Japan, specializing in rice noodles. As of March 31, 2022, the company operates a total of 175 restaurants, including 162 in Hong Kong, 8 in mainland China, 4 in Singapore and 1 in Japan. With more than 20 years of history, the company's Tan Tsai and San GE brands have successfully established an excellent reputation for providing high-quality and delicious rice noodles. According to Euromonitor Euromonitor, the company's market share in Asian noodle stores in Hong Kong was 64.4% in 2021.

Despite the negative impact of the fifth local COVID-19 epidemic in Hong Kong, Tam Tsai International was able to achieve tenacious results in fiscal year 2022 (March 31, 2021-March 31, 2022). Tam Tsai International's revenue in fiscal year 2022 rose 26.8 per cent year-on-year to HK $2.275 billion.

The year-on-year increase in revenue was due to an increase in the number of operating restaurants and a significant increase in revenue from comparable restaurants. Despite the challenges posed by the fifth wave of the COVID-19 epidemic in Hong Kong in the last quarter of fiscal 2022, comparable restaurant revenue at Tam Tsai International Hong Kong restaurants increased by 9.6 per cent year-on-year. The overall daily sales of bowls per seat in fiscal year 2022 was 6.3 bowls, and the per capita consumption of overall customers reached HK $59.8, compared with 6.0bowls and HK $58.4in fiscal year 2021. Excluding one-time listing fees and government subsidies related to COVID-19 's epidemic, the company's adjusted shareholder net profit rose 17.8 per cent year-on-year to HK $164.5 million, equivalent to an adjusted net interest rate of 7.3 per cent. The company proposes to pay a final dividend of HK11.4 cents per share for fiscal year 2022, equivalent to a dividend yield of 4 per cent (based on the closing price of HK $2.82 on May 23).

The expansion of the restaurant network and revenue growth of comparable restaurants are expected to continue to support the company's performance: I) according to management, Tam Tsai International will maintain "caution and self-discipline" in implementing international expansion plans, with the goal of opening more than 60 new restaurants by the end of fiscal year 2023. In fiscal year 2022, despite repeated waves of COVID-19 outbreaks and epidemic prevention measures in various regions, the company successfully expanded its restaurant network to mainland China (Shenzhen and Guangzhou) and Japan (the first restaurant opened in Shinjuku on March 31, 2022). Two other restaurants in Jixiang Temple and Ebisu will open in the first quarter of fiscal 2023), and the process of opening new restaurants in Singapore has resumed since November 2021. The company's expansion in the mainland will focus on cities in the Greater Bay area that are similar to Hong Kong's tastes; ii) the company raised its overall menu price by 2 per cent in February 2022 to ease rising raw material and energy costs. At the same time, the company continues to add new high-end ingredients and snacks with higher profit margins, such as Cordyceps sinensis, conch slices and deer antler mushrooms, to push up the unit price. As social restrictions in many places are gradually lifted, Tam Tsai's growth in Hong Kong and overseas markets such as Singapore and Japan should recover. Although the dynamic zero clearance policy in mainland China and occasional meal restrictions may have a negative impact on the company's operations and expansion plans, we are still optimistic about Tan Tsai International's great potential in the mainland China market. because we had already seen good and persuasive customer responses in Shenzhen and Guangzhou before the repeated plunge caused by the COVID-19 epidemic in March 2022.

We believe that the company's resilient FY2022 results despite many challenges once again demonstrate Tam Tsai's excellent execution and excellent cost control, and we still expect Tam Tsai International to achieve higher growth than its Hong Kong counterparts in the next few years. At the same time, with the performance of successfully entering mainland China and Japan in fiscal year 2022 under the shadow of the COVID-19 epidemic, and maintaining the momentum of restaurant network expansion, the plan to expand at a reasonable rate of "caution and self-discipline" has been verified. Although it will take time for Hong Kong's catering market sentiment and consumer confidence to recover, the relevant government subsidies and consumption voucher schemes will contribute to the recovery of Hong Kong's catering industry. In addition, the company's dividend payout rate is reasonable and its cash flow remains healthy. However, the potential impact of epidemic prevention and control measures on the catering business in mainland China may continue to affect Tam Tsai International's operations and expansion plans in the mainland. Our current investment rating is "buy" and the target price is HK $4.15.