Despite weak performance in 2014, same-store sales growth is expected to improve as expected, and same-store sales growth is expected to exceed 5% in the first quarter of 2015. Xiaonanguo's 2014 revenue reached 1544 million yuan, an increase of 11.4% over the same period last year, while same-store sales increased by 1.0%. Same-store sales grew by-4.3% in the first quarter of 2014, but became positive to 3.9% in the fourth quarter of 2014. Same-store sales of "Shanghai Xiaonanguo", "Nan Xiaoguo" and "Huigong Pavilion" increased by 0.4%, 1.4% and 12.7% respectively in 2014. The net profit in 2014 was 0.6 million yuan (2013: 1.1 million yuan). The company operated 103 stores at the end of December 2014, 20 more than at the end of December 2013.

Xiaonanguo completed the acquisition of a 65 per cent stake in Pokka in January 2015, and Pokka had 32 restaurants in operation at the end of 2014. Xiaonanguo will continue to add 15 "South Pavilions" in 2015. Same-store sales are expected to reach 4.8 per cent, 3.8 per cent and 3.3 per cent respectively from 2015 to 2017. Due to the improvement of same-store sales, the new contribution of "Pokka" and the license of "Michelin", we expect the company's net profit to grow rapidly. We expect the company's net income per share from 2015 to 2017 to be 0.045 yuan, 0.076 yuan and 0.095 yuan respectively, an increase of 115.1 times, 69.9% and 25.4% respectively over the same period last year.

Valuations are still attractive as earnings are expected to grow significantly in 2015 and 2016. We reaffirm Xiaonanguo's "buy" rating, and the target price remains unchanged at HK $1.65, equivalent to 29.1 times 2015 earnings, 17.1 times 2016 earnings and 13.7 times 2017 earnings.