Recently, it was reported that the hot catering stocks were more than 600 times oversubscribed and the funds were frozen by more than 140 billion yuan.

Market sentiment is so high that even if there are minor flaws in the fundamentals, they are ignored. Ninety-nine is so hot because the market has marked it with its catering stock, Haidilao International Holding. From the offering price of HK $17.80 all the way up, Haidilao International Holding has nearly doubled in more than a year, his market capitalization has exceeded 180 billion, and his valuation has reached more than 80 times, which can be called a "myth."

But are all catering companies Haidilao International Holding? Is the catering industry really a good industry? From the perspective of AH catering companies, it is obvious that there are only two types of catering industry: Haidilao International Holding and the others. Since the beginning of this year, except for Haidilao International Holding's share price all the way up, the other share prices have not gone up but basically all the way down.

In the final analysis, catering is not a good industry. High gross profit and low net profit seem to make a lot of money, and Haidilao International Holding's net interest rate is less than 10%. The reason is that the three major costs of raw materials, rent and labor are too large and difficult to compress. So the market is the scale, the income end is big enough, the net profit will follow.

So is it scientific to mark Haidilao International Holding with 99 cents? Judging from some indicators, 99 Mao does look a lot like Haidilao International Holding in some places. Also in the stage of rapid growth, aggressive store expansion, Taier maintains an ultra-high turnaround rate, and the net gross profit margin is close to that of Haidilao International Holding.... However, it can not be ignored that 99 Mao is not Haidilao International Holding. In terms of the development of the basic business format, there is a significant difference between the two. At present, 99 Mao is a dual-brand development, too many myths, and the current revenue share is less than 50%. And Haidilao International Holding is relying on a hot pot to walk the world.

No matter whether it is multi-brand or single-brand, it is the ceiling that cannot escape from development. Take quack-feeding as an example, in the stage of rapid growth, there is also a high valuation. At that time, quack-feeding was also a pot in the world, but once it had passed the stage of rapid development, the valuation began to decline. Now Jiafu is also developing dual brands, but the proportion of the main brand is too heavy, even if the development is good, the contribution to the whole is still relatively small.

Although Taier is in the stage of rapid development, the company's main brand is still ninety-nine. Can 99 brands, which account for half of the revenue, support the company's high valuation? Will the premium offered by the market be too high if we only talk about it in terms of being too stupid?

As mentioned earlier, the catering market is about scale, and the growth of scale is mainly determined by the growth of same-store sales and the number of stores.

The increase in the number of stores is easy to understand, depending on whether national or even global expansion can be achieved. Categories like hot pot have high acceptance, simple operation, high degree of standardization and relatively easy expansion. However, categories such as Cantonese cuisine are relatively minority, and the taste basically depends on the chef, so it is difficult to expand.

On the other hand, the growth of same-store sales can be divided into the increase of customer unit price and the increase of overturning rate, one measure how much each customer charges, the other measure reception capacity. The growth of customer unit price is generally difficult, especially in the current pursuit of "performance-to-price ratio" trend, non-characteristic restaurants are very difficult to make consumers pay, the general increase in unit price is in line with the growth rate of CPI. The turnover rate mainly depends on the speed of eating and the length of service. In fact, the dining time of this category, such as hot pot, is not short, but why can Haidilao International Holding maintain such a high turnover rate, mainly because of his service time factory? according to the research report of the brokerage, Haidilao International Holding's business hours are 17 hours, sometimes even all day. In addition, the business area of the restaurant will also affect the same store sales.

Below, we will look at the real situation behind the halo of Taiji from these angles.

1. The number of stores: can't get out of the northwest food in South China.

According to the prospectus, as of the first half of 2019, the company operated a total of 262 self-owned restaurants and 35 franchised restaurants "2 eggs". Among the self-owned restaurants, 149 are ninety-nine and 91 are too stupid. In terms of the number of stores, 99 Mao has a clear lead, but the company's focus in the future is to vigorously promote the expansion of Taier stores.

As for why the company will focus on Taier in the future, it is easy to understand from the acceptance of taste. Boiled Fish with Pickled Cabbage and Chili as a new category, taste acceptance is also relatively high, national expansion is possible. As the main brand, Jiumaojiu mainly makes northwest food, and its taste acceptance is not as high as that of hot pot and Boiled Fish with Pickled Cabbage and Chili.

In terms of store layout, as of December 22, 2019, the total number of 99 restaurants was 143, a slight decrease compared with the first half of 2019. Jiujiao opened its first store in 1995, but after 25 years of development, it is still concentrated in South China, of which 121 restaurants are concentrated in South China, which shows that there are still some problems in the national expansion. And as northwest cuisine does not have a restaurant in the west, it can be understood that it is aimed at northwestern cuisine in southern China, and its taste has been adjusted, which is also the reason why it can not run out of southern China. In terms of standardization, the number of dishes in 99% is 60-80, and standardization is also relatively difficult.

Therefore, no matter from the perspective of standardization or taste acceptance, the ceiling of 99 cents is not high in store expansion, and it is close to it at present.

2. The growth rate of the same store: the turnaround rate has declined.

In terms of passenger unit price (per capita consumption), whether it is 99 cents or too two, it is not easy to raise it. According to the prospectus, the per capita consumption of 99 Mao increased from 48 yuan in 2016 to 56 yuan in the first half of 2019, while that of Tai er increased from 65 yuan to 75 yuan in the first half of 2019.

The increase in per capita consumption is related to the overall CPI level. In addition, restaurants will also increase per capita consumption by introducing new dishes and other means. At this point, the number of dishes in 99 Mao is relatively rich, and it is easier to improve, but the target customer group of 99 Mao is families, and this kind of people are generally sensitive to prices, which limits the increase of their per capita consumption.

In terms of the turnaround rate, although the Taier turnaround rate is comparable to that of Haidilao International Holding, the turnaround rate of 99% is very average. From 2.5 in 2016 to 2.3 in 2019, the turnaround rate of 99% fell instead of rising.

On the whole, the improvement of per capita consumption is more difficult, which basically depends on the increase of the overturning rate. Although Taier maintains a high turnaround rate, the trend of 99% is going down. At the same time, even if Taier has an ultra-high turnover rate, it is also a question whether it can be maintained in the future. after all, under the rapid expansion of new stores, it is possible for new stores to divert old stores and lead to a decline in the turnover rate.

Therefore, whether in the expansion of stores or the growth of same-store sales, 99 Mao is facing the problem of low ceiling, and from the current indicators, there has been a downward trend.

Conclusion

At present, the company can be said to run faster on one leg, too fast, while the 99% slowdown shows that it is not only difficult to expand the number of stores, but also has a decline in turnover rate, and revenue may slow down in the future.

The future development does not only look at Taier, 99 Mao also occupies a considerable share. So back to the initial question, is the overall valuation of the company reasonable? At present, the average valuation of the entire catering industry is around 20x, while at HK $6.60, the company's market capitalization is HK $8.8 billion and the overall valuation is close to 40X, which is a fairly high level. According to the performance of ninety-nine main brands, which account for half of the total, this valuation is obviously on the high side, so it seems that the current risk of the company is not small.