Haidilao is the main player in overseas markets, a benchmark for Chinese food going overseas
The company is the operator of Haidilao Hot Pot's overseas market. It was spun off from Haidilao in 2022 and independently listed on the Hong Kong Stock Exchange. On April 26, 2024, the company issued an announcement, and the board of directors decided to publicly sell new American depository shares on the US NASDAQ stock market to promote the company's dual listing on Hong Kong stocks and US stocks. The company opened its first overseas Haidilao hot pot restaurant in Singapore in 2012. By the end of 2023, it had expanded its network of stores to 115 stores in 12 countries. According to Frost & Sullivan data, based on 2022 revenue, the company is the third largest Chinese restaurant brand in the international market and the largest Chinese restaurant brand in China.
Operating capacity has improved significantly, and a profit inflection point has emerged
Store expansion drives continued revenue growth. In 2019-2023, the number of the company's stores grew from 38 to 115, and the revenue scale increased from US$233 million to US$686 million, and CAGR +31%. Increased turnover rate and cost ratio optimization drove a loss to profit for the first time in 2023, achieving net profit of US$25.26 million and a net profit margin of 3.7%.
With 2024Q1, the company's turnover rate continued its strong recovery trend and increased further to 3.9 times, achieving revenue of US$188 million/ +16.6%, and net loss of US$4.55 million, mainly net exchange losses of US$13 million.
Deepening the new blue ocean of international Chinese food, the growth potential is expected to be released at an accelerated pace. According to our estimates, the current market share of the Haidilao brand in the international hot pot market (1.8%) is far lower than the domestic market (8%), and there is still great potential for growth in the future; we assume that in the future, Haidilao's market share in the international hot pot market will increase to 4%, then the corresponding opening space will at least double. Benefiting from strong overseas consumption levels, the average revenue performance of Haidilao overseas stores is superior to that of domestic stores, but due to high labor and rent costs, the profitability of overseas stores is weaker than that of domestic stores. The company's overall daily revenue in 2023 was 163,000 US dollars, and the store-level profit margin was 9.0%; we believe that in the future, as scale effects continue to appear, turnover rate and operational efficiency increase, the company's profit margin level is expected to continue to improve.
Investment advice
We expect the company's 2024-2026 revenue to be US$7.99/918/1.05 billion, respectively, with year-on-year growth rates of 16.4%/14.9%/14.5%, respectively; net profit to mother of US$0.48/0.75/19.6 million, respectively, with year-on-year growth rates respectively
88.9%/54.4%/28.9%; EPS was 0.08/0.12/0.16, respectively, and the latest stock price (closing price of HK$16.94 on May 16 and exchange rate of 1USD = 7.81 HKD) corresponds to PE 28/18/14 times, respectively. Covered for the first time, the company was given an “increase in weight” rating.
Risk warning
Overseas macroeconomic fluctuations, increased industry competition, food safety risks, and store expansion fell short of expectations.