Macquarie reported that while there were signs of significant improvement in its 03666.HK business, the return to normalisation of profit margins took longer than the bank expected. Xiaonanguo broke even in the first half of this year (recorded a loss in the second half of last year). The decline in same-store sales on the mainland improved from-10 per cent in fiscal year 2013 to-1.8 per cent in the first half of the year. Even so, the bank expects Xiaonanguo to post an adjusted loss of 9 million yuan in fiscal year 2014 and cut its earnings per share forecast for fiscal year 16 by 53% to 34%. The target price is reduced from 1.8 yuan to 1.35 yuan. Rated "outperform the market".

Macquarie expects the share of revenue to rise from 8 per cent in 2014 to 21 per cent in 2016, helping to boost profit margins. In addition, the bank pointed out that although the core brand Xiaonanguo is no longer the focus of expansion, it will still account for 70% of the group's revenue in fiscal year 2016, so restoring its profitability is particularly critical to the group's overall profitability. The bank believes that the group still needs to further cut restaurant spending. The industry is expected to have an average annual compound growth rate of 7 per cent in revenue for the 2014-16 fiscal year.