As an industry in demand, the catering industry has the characteristics of high stability and strong procyclical properties. Judging from macroeconomic data, there is currently a steady increase in the catering market. According to accurate monitoring of the Ministry of Commerce's big business data, the sales volume of key retail and catering companies across the country achieved a 4.5% year-on-year increase during the National Day.

Of course, it is an indisputable fact that the restaurant industry is going through a cycle of transformation. Influenced by rational consumption trends and fierce market competition, etc., the catering industry is showing “differentiation”: on the one hand, the number of restaurants closed continues to rise, and even some established catering companies have lost money; on the other hand, catering companies with higher cost performance and differentiated competitiveness are rapidly expanding, enhancing profitability.

DPC DASH., Ltd. (1405.HK) - As the exclusive general franchisor of Domino's Pizza in mainland China, the Hong Kong Special Administrative Region of China and the Macau Special Administrative Region of China, it is one of the representatives of the latter, and is receiving increasing market attention.

Since its listing in March 2023, the performance of Dashi Co., Ltd. has continued to outperform the industry market. In the first half of 2024, it bucked the trend and grew strongly, achieving new revenue and overall profits. Recently, DPC DASH also once again released impressive operating data to further verify its growth.

In the third quarter of 2024, Dashi Co., Ltd. continued to seize opportunities in the Chinese pizza market and implement the 4D development strategy, namely high-quality store development, cost-effective delicious pizza, excellent delivery, and digital leadership to achieve dual advancement at the store and user levels.

1. Strong performance of new stores, with a sharp increase in the number of stores and single store sales

According to the third quarter business briefing of Dashi DPC DASH., Ltd., Dashi Co., Ltd. - Domino China continues to promote a “go deeper and go wider” store network strategy, which has accelerated the pace of expansion. Since 2024, DPC DASH has added a net of 210 stores; as of September 2024, it already has a total of 978 stores in 33 cities across the country

Domino's China's net new stores, stores under construction, and the total number of contracted stores also reached about 100% of the annual target of 240 opening, and is expected to open its 1000th store in the fourth quarter.

This means Domino China will join the Thousand Restaurant Chain Enterprise Club. In this high-threshold club, Domino China has not only demonstrated strong market competitiveness and broad influence, but has also gradually shown the potential and certainty of steady progress and continuous growth. Referring to the “2024 White Paper on China's Catering Franchise Industry” issued by the China Chain Management Association, in 2023, the domestic catering industry ushered in a new round of chainization. The number of stores owned by large domestic restaurant chains (more than 1,000 stores) accounted for 24% of all chain stores, an increase of 1.1 percentage points over the previous year.

Meanwhile, Domino's China plans to add about 300 to 350 new stores each in 2025 and 2026. It can be seen that it will continue to expand at a rapid pace, providing a strong guarantee for continued growth in performance.

It is also worth noting that Domino's China's new store sales performance is excellent. Currently, it occupies 28 of the top 30 seats in Domino's global sales ranking of over 0.02 million stores, showing the phenomenon of “exploding as soon as it opens”; Domino's China's same-store sales (SSSG) growth also continues, and has recorded positive growth for the 29th consecutive quarter since the current management took over in the third quarter of 2017.

This strong performance all reflects the strong demand in the Chinese pizza market and the strategic correctness of Domino's China. It shows that the rapid expansion of Domino's stores in China is a sharp increase in quantity and quality, which can unleash more potential for growth.

2. Create customer value, two-wheel drive for old and new customers

At the user level, Domino China implements the 4D development strategy and promotes innovative measures based on this to bring more value to customers, thereby promoting the retention of existing customers and the conversion of new customers to form a two-wheel drive.

Specifically, taking the cost-effective delicious pizza strategy as an example, Domino's China standardizes store products through central kitchen control and supply chain support, ensures product quality, and continuously innovates products every 6 to 8 weeks, bringing consumers a new experience. For example, the Musan King and Sultan Durian Pizza, French Burgundy-style beef pizza, charcuterie roll with black gold honey sauce, burnt coconut pumpkin double layer cake base, and “volcano” cake base, which was launched in the first half of 2024; Korean-style plum meat pizza with pear sauce was just launched in October, adding different flavors to its products at different prices to meet consumer preferences.

Domino's China also creates personalized rewards based on digital leadership and online marketing campaigns to promote customer participation, such as launching promotions such as “one after another” (30% off pizza every Tuesday and Wednesday) and the traditional annual limited-time Mega Week (buy one get one free).

As of September 2024, the total number of Domino's loyalty program members in China reached 21.7 million, a significant increase over the same period last year. Over the past 12 months, 11 million new customers have purchased Domino's Pizza for the first time.

This further highlights the strong market appeal of DPC DASH., Ltd., and has also established a two-wheel drive, virtuous cycle development system: while stabilizing old customers, attracting more new customers to join, then promoting the transformation of new customers into old customers and achieving continuous feedback.

3. Continuously improve liquidity to create long-term value for shareholders

From the perspective of returning to the capital market DPC DASH also bring stable and long-term value returns to shareholders. Since its listing in March 2023, the stock price has accumulated a cumulative increase of more than 60% and reached a record high of HK$80.5 within the month.

According to the October 17 DPC DASH announcement, Domino's Pizza LLC, an indirect wholly-owned subsidiary of Domino's Pizza, sold 10 million shares to many institutional investors through bulk transactions. From the company's listing in March 2023 until the sale of shares, Domino's Pizza LLC held 18,101,019 shares, accounting for about 13.87% of the company's total issued share capital. Following the sale of shares, Domino's Pizza LLC accounts for approximately 6.21% of the company's total issued share capital, and the remaining shares will be banned for 90 days from the sale date of the shares. This reduction in shareholding is a normal capital operation, does not involve a long-term cooperative relationship between the two parties, and has no significant impact on the finance and business of DPC DASH., Ltd.

Some analysts believe that Domino's Pizza LLC's current reduction in Dashi's holdings may be due to considerations of optimizing capital allocation. A highly liquid stock market can better reflect corporate value. This also helps it attract more diverse investors, increase institutional shareholding ratios, etc., and achieve more stable and excellent market performance.

In the context of various domestic policies being introduced one after another, capital has greatly increased Chinese assets, and the Hong Kong stock market is picking up, and is in an overall liquidity improvement cycle. The Hong Kong Stock Exchange also launched relevant boosting measures this year to continue to drive improvements in market liquidity. This market environment provides good external conditions for Dashi Co., Ltd. and helps it continue to create value for shareholders.

Finally, as mentioned earlier, the catering industry also has strong procyclical attributes. For example, the transmission of policies to the consumer side is smooth after implementation. Catering companies with excellent fundamentals, such as DPC DASH, are expected to benefit from this, further enhance revenue and profitability, and may stimulate valuation increases, showing greater investment appeal.