What is new? Haidilao (6862 HK, BUY) and Super Hi (9658 HK, NR) have announced a management change. Yang Lijuan resigned as the executive director and CEO of Haidilao and will become the executive director and CEO of Super Hi. Gou Yiqun will be appointed as the executive director and CEO of Haidilao.
CMBI's view: We don't think it is a negative to Haidilao as the company's operation is still improving and the potential for new store openings is still increasing. For Super Hi, we believe it should be a positive.
Regarding the departure of key person Ms. Yang, we think the impact on Haidilao is neutral:
1) The financial performance has been good and definitely not lower than expected. As mentioned in the announcement, both the Woodpecker Program/ 啄木鸟计划 in 2021 (closing around 300 stores and improving the operation of remaining stores, and not opening any new stores until the table turnover has returned to 4 times or more in principle) and the Ying Gu Tou Program/ 硬骨头计划 in 2022 (reopening some of the previously closed stores) have been successfully completed. The current table turnover is remarkable (around 4.2x in the second half of 2023 and 4.3x the first five months of 2024, recovery rate vs 2019 should be above 100%, compared to industry average of just 70% to 80%), while the 50 to 100 of those previously closed stores have been reopened in FY22-23.
2) Haidilao's competitiveness (in terms of talent) will not be affected much in our view, because except for Ms. Yang, no other executives will be transferred to Super Hi. Besides, we do think the new CEO Mr. Gou is highly competent. Similar to Ms. Yang, he was also one of first employees when Mr. Zhang and Mr. Shi started the business. During his long tenure with Haidilao, Mr. Gou has worked as the CFO, head of IT department, head of supply chain and procurement, as well as the chairman of Shuhai.
3) On top of the steady improvement in operation which made it outperform its peers by miles in recent years, 1) new products are highly successful, as they are refined after listening to feedback from top-tier members during the tasting sessions and some are more localized, 2) marketing has gone viral on social media, thanks to sharing of various "hidden" eating methods and the "Subject 3" dance, 3) the engagement with customers has been enhanced, such as inviting black card members to Haidilao store managers' conference and high-tier members to new product tasting sessions. The potential for new store openings has also increased. For instance, the franchising stores are going to be launched soon, while the performance of campus stores is outstanding. And more importantly, the Xiao Hai Huo Guo/ 小嗨火锅 (a mass- market version of Haidilao hot pot) has been well-received. All of these could be the building blocks of a potential speed-up in store expansion.
Maintain BUY with TP of HK$ 21.52, based on 20x FY24E P/E (unchanged). The stock is trading at 15x FY24E P/E and also has a 6% FY24E yield, which still looks somewhat attractive, for a more long-term investment perspective.
Even though there are only single-digit new stores YTD, the company is still very confident on achieving its FY24E target of single-digit % growth (around 50). However, as the store expansion pace is still slow in near term and the macro environment is fairly weak, we believe investors can continue to monitor and wait for the moment that store expansion acceleration occurs, where the valuation could be re-rated.
Moreover, we believe the move is positive for Super Hi, because Ms. Yang's expertise could be highly useful for Super Hi's future expansion. As stores have just started to achieve breakeven and generate positive cash flow, a store expansion acceleration has become much more possible.