We maintain a “buy” rating with a target price of HK$1.40. We believe that the negative impact of Hong Kong residents' consumption in the north should be relatively small on the company. Furthermore, we expect the company's future growth potential to come from: 1) overseas expansion; 2) franchise partnerships with its controlling shareholders. We expect the company's earnings per share for FY2025 to 2027 to be HK$0.096, HK$0.103 and HK$0.111 respectively, corresponding to a compound annual growth rate of 7.8%. We set the target price at HK$1.40 using a price-earnings ratio of 14.5 times FY2025. We maintain the company's “buy” rating.

Achieved solid results in FY2024 in a challenging business environment. Tam Tsai International's revenue for the 2024 fiscal year increased 5.9% year over year to HK$2,748 million. Net shareholders' profit for the 2024 fiscal year was HK$118.6 million, a year-on-year decrease of 15.8%. However, excluding government subsidies (the government subsidy for FY2023 was HK$53.7 million, mainly due to the impact of the pandemic), adjusted net profit for FY2024 recorded a sharp year-on-year increase of 34.2% to HK$117 million. We believe that as a leading noodle brand in Hong Kong, the company's “Tam Tsai” rice noodle fast food should be relatively less negatively affected by more Hong Kong residents going north to consume, which will ensure steady growth in its base market.

Overseas expansion and franchise models should bring some room for growth. Over the next few years, the company will expand its business to Australia, the Philippines, and Southeast Asia. Furthermore, with the controlling shareholder's multi-restaurant brand resources in Japan, the company can operate more food brands in Hong Kong through franchises, thereby gaining another impetus for growth. We anticipate that these two methods will bring new revenue streams to the company.

Catalysts: 1) successful expansion of overseas markets; 2) successful introduction of new brands through the franchise model; 3) growth brought about by new products.

Downside risks: 1) Expansion plans may increase risk and uncertainty; 2) New market operations will fail due to regional differences; 3) Hong Kong's macroeconomic weakening.