According to the Zhixun Finance APP, Guosen Securities released a research report stating that in the first half of 2024, the operational performance of companies in the dining sector was under pressure, but leading catering companies with strong supply chain foundations and strong brand consumer stickiness still have a relative advantage in operational performance, achieving good alpha growth. Considering the frequent use of consumer promotion combinations recently, the dining sector is expected to benefit from both the fundamentals and sector sentiment, balancing operational performance certainty and the gradual recovery of the consumer environment. Maintaining a sector "outperforming the market" rating.

Guosen Securities' main points are as follows:

Chain dining industry: Growth in lower-tier cities is a core topic, with cost reduction and efficiency improvement as core issues.

From the revenue perspective, data from the National Bureau of Statistics shows that since March 2024, the year-on-year growth rate of catering income has decreased month by month. As of August 2024, the cumulative year-on-year growth rate of catering income still leads the growth rate of total social retail sales, showing certain resilience in the catering industry. Looking at the types of enterprises, the income growth rate of catering enterprises with annual revenue of more than 20 million yuan above the quota is declining faster, and it is expected that they will undertake more dining scenarios greatly influenced by the macro environment such as business banquets and family gatherings. Looking at city levels, first-tier cities like Beijing and Shenzhen are more significantly impacted, with Beijing showing a negative year-on-year growth rate in accumulated income since March 2024, while new first-tier cities like Chongqing and Chengdu continue to grow against the trend, with lower-tier cities becoming the backbone of growth.

From a profit perspective, data from the Beijing Municipal Bureau of Statistics shows that in the first quarter of 2024, the catering losses of legal entities amounted to 45.4 billion yuan, a year-on-year decrease of 169%. However, starting from March 2024, monthly profits turned losses into gains, showing an improving trend. The total profit of legal entities in the catering industry from January to August 2024 was 7.5 billion yuan, with a continuous narrowing of the year-on-year decline by 72%, showing the gradual effects of cost reduction and efficiency improvement by catering companies. Looking ahead, in the current consumer environment, the expansion in lower-tier cities and the layout of high cost-effective price ranges (21-40 yuan) are expected to be the industry's future focus areas.

Retrospective analysis of the sector's trends.

Affected by factors such as pressure on same-store sales and low-price competition in the industry, as of September 24, the A+H dining sector has been under pressure and declining. Only a few leading dining companies such as Super Hi (stock price rose +31%) and Haidilao (+9%) have achieved positive returns relying on brand momentum, cost control, and efficiency improvement. Starting from September 24, a combination of domestic consumption promotion policies have been successively introduced, leading to a warming sentiment in the dining sector and a strong rebound in stock prices. Previously oversold dining stocks such as Helen's, Xiabuxiabu, and Jiumaojiu surged by more than 85%, 71%, and 69% respectively. Leading companies like Haidilao and Yum China also achieved impressive gains.

Three major trends for listed chain dining companies in 2024

1) Same-store sales are generally under pressure, seeking breakthroughs by enhancing product value for money. In the first half of 2024, same-store sales for dining brands generally declined, with decreases ranging from 4-43%. Only a few brands like Haidilao maintained growth in same-store sales. Faced with pressure on same-store sales, chain dining brands are increasing discount levels or launching low-price new products to boost customer traffic (average customer spending generally decreased by 5-10% year-on-year), resulting in marginal recovery of same-store sales for Haidilao and KFC after these measures were implemented.

2) Expansion strategies are becoming more cautious, and leading brands are leveraging franchisees. From 2020 to 2023, it was a period of rapid expansion for listed chain dining brands. However, as we entered 2024, the pace of brand store expansion gradually became more cautious, with some brands adjusting their annual expansion plans downwards. Leading brands are also gradually adopting a franchise model, with Helen's (June 2023), Nayuki (July 2023), Tai'er (February 2024), and Haidilao (March 2024) successively announcing the opening up of franchising.

3) Valuations in the sector are at historical lows, and listed companies are increasing share buybacks and dividends. However, from a PE band perspective, valuations of listed chain dining companies in Hong Kong still remain at historically low levels. Since 2024, listed dining companies in Hong Kong have been intensifying share buybacks, with Yum China, Jiumaojiu, and Nayuki each repurchasing over 7.3%, 2.8%, and 0.6% of total shares respectively. In addition, some companies have also increased dividend payouts, enhancing the investment value of the companies.

Regarding investment targets: In the short term, it is recommended to focus on leading companies with high operational certainty such as Haidilao (06862) and Yum China (09987). At the same time, it is also recommended to invest in the leading local life service provider Meituan-W (03690) (leveraging the synergy between takeaway and dine-in services, with Meituan's takeaway stores becoming a new addition to the industry). If there is sustained policy support in the future and observation of marginal substantial improvement in the operational fundamentals of dining, it is also recommended to pay attention to the rebound opportunities of oversold stocks such as Jiumaojiu (09922), Tongqinglou (605108.SH), Guangzhou Restaurant Group (603043.SH), Helen's (09869), Nayuki (02150), and Xiabuxiabu (00520).

Risk warning: Systemic risks related to macroeconomic politics, intensified industry competition, lower-than-expected incubation of new brands, brand aging, food safety concerns, and other risks.