According to the National Bureau of Statistics, domestic catering income in 2014 was 2.786 trillion yuan, an increase of 9.7% over the same period last year. Although the growth rate was 0.4% lower than that in the first half of 2014, it was 0.7% faster than that in 2013. Among them, the catering income of enterprises above the quota reached 820.8 billion yuan in 2014, an annual increase of 2.2%, successfully reversing the 1.8% decline in 2013. The domestic catering industry further improved in the first two months of 2015, with the income of the entire catering industry growing by 11.2%, of which the growth rate of catering income of enterprises above quota also reached 5.1%, both of which were 1.5 and 2.8 percentage points faster than in 2014, respectively. As the negative impact of the three public consumption gradually fades, we believe that the domestic catering industry has picked up, and public consumption is still the focus, and the performance of Little South, which has a relatively rapid transformation and good management quality, is expected to improve significantly in 2015.

Shanghai Xiaonanguo, "Nan Xiaoguo" and "Huigong Restaurant" are the main catering brands in Xiaonanguo. The same-store sales of these three brands increased by 0.4%, 1.4% and 12.7% respectively in 2014. Among them, the prices of "Shanghai Xiaonanguo" and "Huigong Restaurant" became more affordable and successfully attracted more customers, and the increase in average turnover rate led to the change of same-store sales growth from negative to positive in 2014. Looking forward to 2015, the adjustment of per capita consumption has been basically completed, and the optimization of the "Shanghai Xiaonanguo" menu will continue to increase passenger traffic and promote the growth of same-store sales. The development of "South Pavilion" is also roughly in line with the company's expectations. The average turnover rate of mature stores after one year of operation is 4.3 times, and the operating profit margin of stores is 13.1%, which is higher than that of "Shanghai Xiaonanguo" and "Huigong House". The company will continue to open 15 "South Pavilions" in 2015, and the total number of stores is expected to reach 32 in 2015. In 2014, Xiaonanguo managed the "Uncle Chase" cheesecake brand and established the "Michelin" milk tea brand, with a total revenue of 11.5 million yuan. Although the life cycle of these business products is short, the capital investment is not high and the return is considerable. The company can also deepen its understanding of different regions of China, and the advantages outweigh the disadvantages for future development. The company completed the acquisition of 65% stake in Pokka HK in January 2015. in the short term, the company will help Pokka improve the efficiency of Hong Kong and Macau, and the company will develop Japanese-style western restaurant and coffee business in China in the medium term. Diversification is also the company's future development strategy. In addition to the above brands, the company has opened "Aoji" (Japanese-style western food brand) and "Xiaonanguo" brand restaurant. In 2015, the company will open "Boat House" and "Wolfgang Puck" western restaurant in "Shanghai Walt Disney Company", as well as "Huangchenggen Hot Pot" popular restaurant brand restaurant.

On December 31, 2014, the company operated a total of 103 restaurants (excluding 32 Pokka HK restaurants). By the end of 2015, the company expects to operate 166 restaurants and manage 90 Michelin milk tea stores through a licensed business model. Driven by passenger traffic, the company expects same-store sales to grow by more than 5% in the first quarter of 2015 and more than 4% for the whole of 2015. We expect the company's same-store sales to grow by 4.8 per cent, 3.8 per cent and 3.3 per cent respectively in 2015-2017. In 2014, the company's net profit was only 0.6 million yuan. Looking forward to 2015, the company's net profit will reach 66.1 million yuan in 2015, with the return to rapid growth in same-store sales, the new contribution of Pokka HK and the revenue from one-off store royalties and management services of "Michelin". The current price is equivalent to 16.7 times the company's 2015 price-to-earnings ratio and 9.9 times 2016 price-to-earnings ratio. Our investment rating on Xiaonanguo is "buy", with a target price of HK $1.65, equivalent to 29.1 times 2015 price-to-earnings ratio and 17.1 times 2016 price-to-earnings ratio.