Company profile:
Tai Hing Group is a multi-brand leisure restaurant group originating from Hong Kong. In addition to the flagship brand "Taixing", the Group has successfully expanded its brand portfolio through self-creation, acquisition and licensing, including "Tea Wood", "reliable", "Minhua Ice House", "Jinli", "Tokyo Tsukiji Canteen", "Fish and Animal Husbandry", "meal rules" and "husband and wife boiling tablets". The restaurant network has 191 restaurants (including 184 self-owned and 7 franchised restaurants), of which 126 are in Hong Kong, 63 in mainland China, one in Macau and one in Taiwan. In 2017, the Group ranked first in the market for self-operated leisure restaurants in Hong Kong, with a market share of 4.0%, and ranked first in the number of restaurants in the market for self-operated desktop leisure restaurants in Hong Kong. In addition, it ranks second in the market for self-operated leisure restaurants in mainland China, with a market share of 0.1%.
Sino-Thai point of view:
Hong Kong's leisure catering operating costs face challenges: according to Frost Sullivan, revenue in the Hong Kong leisure catering market will reach HK $54.6 billion in 2022, with a compound annual growth rate of 3.6 per cent. The food price index of Hong Kong's major raw materials is expected to grow at a compound annual growth rate of about 3.5% from 2017 to 2022, and the cost of raw materials will be under heavy pressure in the future. The minimum wage has been reviewed three times and has risen from HK $28.0 per hour in 2011 to HK $34.5 per hour in 2017, and labor costs have also posed challenges for restaurant operators.
In terms of operating results: from 2016 to 2018, Taixing Group realized operating income of HK $2.513 billion, HK $2.771 billion and HK $3.126 billion respectively. The steady increase in revenue was mainly due to the increase in the number of restaurants operated. Nearly 70% of the income comes from "Taixing" and nearly 17% from "tea wood". The net profit margin is 7.83%, 7.56% and 9.75% respectively. Excluding the non-recurrent income of HK $163 million from the sale of non-current assets and listing expenses in 2018, the real net interest rate is 4.9%, down 2.66% from the same period last year. This is mainly due to the increase in non-recurrent pre-opening costs and operating costs caused by the operation of food factories in mainland China in October 2018. The average number of customers per restaurant of all brands of the Group is about 653 per day, the average daily sales of each restaurant is about HK $48743, and the average turnover rate is about 5.2.
Valuation: based on 1 billion shares after the global public offering, the company's market capitalization is HK $28-3.8 billion, which is lower than that of its Hong Kong counterparts. The company's price-to-earnings ratio is about 9.2-12.5 times, which is lower than the industry average; the price-to-book ratio is about 2.75-3.02 times, which is lower than the industry average. In terms of profitability, the 18-year ROE and ROA were 108.2% and 19.5% respectively, higher than the industry average. Considering the company's industry status, performance and valuation, we give it 70 points, rated as "purchase".
Risk tips: (1) market competition risk (2) increase in food purchase cost and property rent