Xiaonanguo's same-store sales increased by 1.9% in 2015, which is slightly better than before, but the company recorded a huge one-time cost of sorting and restructuring stores of RMB 100 million during the period. As a result, Xiaonan's net loss in 2015 reached RMB 93 million. Excluding these one-time expenses, core net profit in 2015 was RMB 7 million, down only 1.2% from the previous year.

Other than the 4 restaurants that will open at Shanghai Disney, Xiaonanguo does not anticipate adding Chinese restaurants in 2016. In 2016, the company expects to close 6-8 stores in lower markets. The opening of Shanghai Disney and improved menus are expected to drive the increase in same-store sales in 2016. The company will adopt a product commercialization strategy and continue to reduce headquarters expenses. It is expected that Xiaonan will benefit from the growth in the lifestyle service industry, but it is difficult to predict the extent to which it will benefit. Due to the number of new stores, the increase in same-store sales in 2017, and the profitability of Nan Xiaoguan, which may be lower than expected, we lowered Xiaonanguo's net profit per share by 22.0% and 4.6% in 2016-2017 to RMB 0.028 and RMB 0.043 respectively.

Shanghai Disney is expected to open in June 2016, and sales of the various brands of Xiaonanguo restaurants in Shanghai are expected to accelerate. Same-store sales are expected to be faster in 2016 than in 2015. We reaffirm Xiaonan's “buy” rating. The target price of HK$0.85 also remained unchanged, which is equivalent to Xiaonan's 26.2 times 2016 price-earnings ratio, 16.7 times 2017 price-earnings ratio, and 13.1 times 2018 price-earnings ratio.