Since May 30, the Hong Kong stock catering sector has rebounded over the past few days, rising more than 36% by midday, with a significant moneymaking effect.

And, on June 25, as Shanghai announced the victory in the defense of Greater Shanghai, the industry as a whole ushered in a rising market again.

What do institutions think of the subsequent recovery in consumption?

Great victory in the defense battle, catering recovery is expected to rebound strongly.

Shen Wanhongyuan's analysis believes that since mid-March 2022, due to the spread of the COVID-19 epidemic in Shanghai and other places, Shanghai has entered a state of global static management since the beginning of April and has continued to mid-May, resulting in the suspension of business in offline shopping malls and restaurants.

At the same time, the static management policy also halted the takeout business in some catering stores, causing the total retail sales of consumer goods (accommodation and catering industry) in Shanghai to fall to 7.05 billion yuan and 3.67 billion yuan respectively in March and April 2022, down 46% and 72% respectively from the same period last year. Accounting for 1.3% and 2.6% of the total food and beverage income of national social consumption and retail sales respectively, 2.4% and 1.4%.

Judging from the national consumption situation, the cumulative total retail sales of consumer goods in March and April 2022 decreased by 7% compared with the same period last year. Although consumption is blocked, compared with March and April 2020, that is, when the total social zero fell by 12% year-on-year at the first outbreak of the epidemic, the impact of this static management policy on overall consumption is slightly weaker.

Social zero catering revenue from March to April in 2022 was 554.4 billion yuan, down 20% from the same period last year and 18 percentage points lower than the 38% in the same period in 2020.

Therefore, we believe that after this epidemic, the repair of the catering industry may be faster than in the second half of 2020.

After the recovery, the focus is still on the upgrading of household consumption demand.

On the other handThe disposable income of Chinese people has been on the rise over the past 20 years. The per capita disposable income of urban households will reach 43800 yuan in 2021, with a compound growth rate of 10.2% for 20 years.

The increase in disposable income has further stimulated residents' demand for dining out and high-end catering, which in turn led to a sharp increase of 7881 yuan in per capita food expenditure of urban households at a compound annual growth rate of 7.2% from 2028 yuan in 2001.

In addition, with the gradual diversification of categories and cuisines in the catering industry, the quality of food and beverage has shifted from "satiety" to "eating well", the embodiment of catering is also constantly innovating, and the trend of consumption upgrading in the catering industry is prominent.

It can be seen that another driver of consumption upgrading is the increasing urbanization rate in China, which increased from 51.83% in 2011 to 64.72% in 2021.

Due to the migration of the rural population to the urban population and the continuous improvement of the level of housing and consumption, the demand of the new urban population for the upgrading of food and beverage consumption is driven.

This direction of development is also in line with the exhibition store path of many listed enterprises, taking Haidilao International Holding and Jiumaojiu as an example.

By the end of 2021, Haidilao International Holding had set up 559 stores in third-tier cities and below, an increase of 24 percent over the same period last year, accounting for 46 percent of the total number of stores, accounting for 6.4 percent more than in 2020.

Boiled Fish with Pickled Cabbage and Chili, the main brand of Jiumaojiu, has also begun to gradually lay out the sinking market. as of May 2021, the company has opened 48 stores in third-and fifth-tier cities, accounting for 13.3% of the total number of stores.

With the marginal decline of the exhibition store, brand innovation has become a new moat.

Nowadays, the competition in China's catering industry is becoming more and more fierce, and the innovation ability of brands is defined as a new moat.

Due to the diversity of cuisines in China's catering system, low barriers to entry, and scattered and fierce competition, customers' food and beverage preferences are changeable.

And with the development of Meituan, Dianping, and all kinds of short video platforms, brand packaging has become the key to whether catering institutions can obtain customers and expand rapidly, but also shortens the life cycle of brand effect in the catering industry at this stage.

You can seeEspecially for brands that focus on dinners and unique cuisines, because it is difficult to extend the life cycle of brands through product iterations like manufacturing brands, or to occupy a large number of market share through first-mover advantage.。

However, the brand effect of food and beverage brands often decreases with the increase of the number of stores, and is gradually reflected in the customer flow and turnover rate of stores.

Therefore, in the environment where the brand effect decreases with the edge of the exhibition store, whether catering enterprises can continue to incubate new brands has becomeA core competence.

Agency suggestion: looking for the certainty of the model of exhibition store and single store in the recovery of consumption

Shen Wanhongyuan believes that as the market recovers after the epidemic, head catering enterprises will have increased concentration and repair flexibility.

And the attributes of the overall catering industry along with the economic cycle can also start a rebound with the gradual recovery of the economy, driving the recovery of the income scale of the catering industry.

At present, the average expected PE of the Chinese catering sector of Hong Kong and US stocks is 32.7 times in 2022 and 21.4 times in 2023.

The PE (TTM) of all listed catering companies has also fallen to between 6-32 per cent of the historical quantile. Although affected by the epidemic in the short term, performance may fluctuate.

However, we believe that the catering industry has passed the darkest moment of this epidemic and is expected to rebound after the repair of the epidemic. At this stage, the plate valuation has a certain performance-to-price ratio, so we are optimistic about the catering sector of Hong Kong and US stocks.

Focus on four indicators: 1) the expected completeness of opening a store; 2) whether the single-store model is stable, or there is room for further improvement; 3) whether the long-term optimization space for costs is sufficient; and 4) the innovation ability of catering brands, whether the innovation mechanism is sound.

To sum up, the recommended target of Shen Wanhongyuan:$99 (09922.HK) $、$Helens (09869.HK) $、$Haidilao International Holding (06862.HK) $、$Yihai International (01579.HK) $、$Zhou's Black Duck (01458.HK) $$00520.HK (quack) $。