Tanggong Xiaoju is hugely popular - Tanggong Xiaoju Group's self-created brand in recent years. The restaurant produces exquisite, detailed products, and has a good image. It was very popular among women in the camera-first eating era, and was well received in a short period of time. The Tang Palace Xiaoju covers less land than traditional restaurants, so the capital required to open a business is lower, the payback period is shorter, and the technical requirements for talents are also relatively low, so it is easy to develop rapidly. I believe the Group will step up the development of this brand, open branches at a faster pace in the next few years, and accelerate the growth of the Group's revenue.

Business reform increases Maori - Starting May 1 this year, the Mainland will fully launch a pilot project to change the levy of business tax to value-added tax throughout the country. After “business reform and growth”, the overall tax load of the food and beverage industry should be reduced. It is expected that the gross margin of the group will increase, so we believe that the gross margin of the group can be maintained at present or raised to a higher level.

Generous dividends - The group's dividend ratio has always been generous, and last year the group raised the dividend ratio to 80%. Meanwhile, according to Yu Gang's 2016 interim results, the group paid out a special interim dividend for the first time. The group is well-funded, its net cash is over 400 million yuan, and its cash flow is plentiful. It continues to distribute high interest rates on an orderly basis.

Valuation - We gave Tang Palace China a “buy” rating, with a target price of $3.54. This target price is estimated based on the Discounted Free Cash Flow Valuation Model (Discounted Free Cash Flow Valuation Model). Based on the calculation of $2.46 per share on November 17, the potential increase is 43.9%.

Investment Strategy - The Group is famous for its Chinese restaurants in mainland China. Most of the Chinese seafood restaurants in Tang Palace have been in operation since they first opened. The business is quite stable, providing the group with a fair amount of cash flow. The Group suffered a sharp decline in profits in 2013 due to the negative impact of the central government's curbing of consumption by the three public companies, but after the Group adjusted its operations, it has now regained strength. In recent years, the Group's self-created brands, Tanggong Xiaoju and Tanggong Tea, have been well received by diners. It is believed that the Group will step up the development of this brand and suggest investors buy it at current prices.