During the Spring Festival in 2018, it is not only the record-high total box office of films, and the "sky-high air tickets" on the outlying islands of Hainan. In the land of China, where the whole people can be called "foodie", the theme of the festival is of course inseparable from eating.

Accordingly, in the Hong Kong stock market, we can see that film and television-related BABA Film (01060) and IMAX China (01970) once rose astonishingly, and aviation stocks also rose across the board driven by the sharp increase in passenger traffic during the Spring Festival.

In the six and a half trading days before and after the Spring Festival (as of February 22), the Hong Kong food and beverage sector rose 12.5%, far exceeding the performance of the Spring Festival in previous years, with nothing more eye-catching than the hot pot concept stock quafting (00520) and Yihai International (01579). They rose 21.8% and 38.57%, respectively.

According to the monitoring of the Ministry of Commerce, from New Year's Eve to the sixth day of the first lunar month (February 15-21), retail and catering enterprises across the country achieved sales of about 926 billion yuan, an increase of 10.2 percent over the Spring Festival Golden week last year.

Zhitong Financial APP learned that in China's catering industry, hot pot market share is as high as 22%, making it the single largest catering category in the country. With the catering industry booming during the Spring Festival, it is not surprising that hot pot stocks are directly driven higher.

The so-called "first stock of hot pot" is positioned as "fast food hot pot for one person", while the New year's Eve dinner, reunion dinner, and family and friend banquets during the Spring Festival are obviously not covered by sipping.Is it possible that the recent rise in this stock is just short speculation? What investors must want to know is, what is the future potential of the company? In addition, compared with Yihai International, which makes compound seasonings, including hot pot base, who has stronger growth?

Hot pot is still the star of China's catering industry.

From the perspective of the whole catering industry, with the increase of income and the improvement of living standards, people's tastes are picky and fickle, and the forms of catering industry are becoming more and more diversified. Chinese traditional chain catering industry is actually not easy. In 2017, the number of restaurants across the country was 5.81 million, down 3.48% from the same period last year. High-end restaurants such as Golden Leopard, South Beauty and Xiange fell into the predicament of shutting down one after another.

Different from other food and beverage categories, hot pot has become the largest and fastest food and beverage industry in the domestic market because of its few processing links, unified configuration of ingredients and condiments, easier standardization, rich ingredients and freer taste. On the other hand, however, the low threshold of the industry has led to a very scattered hot pot market and low industry concentration: reflected in the figures, Haidilao International Holding, the largest chain of hot pot restaurants in China, has a market share of only 1.09 per cent.

Hot pot accounted for 22% of the total turnover of the catering industry in 2016, reaching 770 billion yuan, nearly double that of the second-largest buffet, according to the China Food and Beverage report.

The moat of quack-feeding

At present, the well-known domestic chain hot pot enterprises include Haidilao International Holding, Huang Jihuang, Xiaowei Sheep, Dalongzhuang, Dezhuang, Hongdongdoulao and so on. Among them, the listed companies are Jiabu, Hongding Doulaao and Xiaowei Sheep.

Jiayu is a small hot pot catering chain with a bar table. It was established in Beijing in 1998 and listed on the Hong Kong Stock Exchange in 2014. By the end of June last year, the group had 650 quack-feeding restaurants and six patchwork restaurants in China, all of which adopted the direct operation model.

According to the 2017 Annual report on China's Restaurant Industry released by the China Hotel Association last year, Jiabu ranked fourth in its list of the top 20 Chinese hot pot catering groups in 2017, up two places from 2016.

The positioning of quack feeding is a small hot pot for rapid leisure, with fast and cost-effective as the selling point. Compared with peers, its main advantages are reflected in the standardized hot pot food industry chain and strong cost control ability. The company has exclusive and secret soup base and dipping ingredients, while the raw materials of food materials establish a long-term exclusive cooperative relationship with suppliers and purchase directly. Due to the large purchase volume, the bargaining power is also strong. In addition, the unique U-shaped bar design in the store not only ensures customer satisfaction, but also greatly reduces staff costs.

According to CICC, the unit price is only 48 yuan, the lowest among the top 10 hot pot chains in China. As the company continues to grow in size, it will become increasingly difficult for competitors to replicate, which is another advantage of its scalable business model.

Quack feeding is also a typical "small and beautiful" enterprise, with restaurants with an area of 200m to 300m2, which is faster to expand than traditional hot pot chains (such as Haidilao International Holding). The cost recovery cycle of the new store is also shorter, only 14 months.

In recent years, with the rapid increase in the number of newly opened restaurants, and the turnover rate maintained at a high level, the performance of quack-feeding has achieved a large increase.

In the first half of last year, its revenue was 1.576 billion yuan (the same as the same unit below), an increase of 24.8% over the same period last year, and the profit during the period was 188 million yuan, up 35% from the same period last year. In the five years to the end of 2016, the annual compound growth rate of revenue was 12.8%, and the compound growth rate of profits attributable to company owners was 28%.

It is worth mentioning that Beijing has always been the group's most important regional market, with 42.6 per cent of restaurants and 54 per cent of revenue contributions in the first half of last year. According to the 2017 China News, the number of restaurants in Beijing decreased by 6, and the proportion of revenue in the group's total income also continued to decline, but the revenue and same-store sales in the region showed a trend of accelerated growth, and other areas outside Beijing blossomed in an all-round way.

The momentum of growth is good, coupled with the catalysis of recent expectations of entering the Hong Kong Stock Exchange, it is not too much to increase by 20% in two weeks.

(screenshot source: Zhitong Finance APP)

Two trump cards of Yihai International

Directly benefit from the hot pot "hot pot" in winter (including during the Spring Festival), of course, there are suppliers of hot pot ingredients such as Yihai International.

As we all know, Yihai International is a leading domestic manufacturer of composite seasonings, and its products mainly include hot pot bottom products, hot pot dipping products and Chinese composite seasonings, mainly hot pot condiments, which account for more than 85% of the average annual income. Domestic market share ranks first.

Haidilao International Holding International products are sold to related parties (Yihai and related companies) and third parties (dealers, e-commerce, third-party catering enterprises and one-off sales activities). Haidilao International Holding Group is China's largest chain of hot pot restaurants and China's number one Chinese food enterprise, all of its hot pot ingredients are supplied from Yihai International.

In terms of future growth, although the company began to set foot in the self-heating hot pot market in July last year, because it is still in its infancy and the market has doubts about the safety of self-heating hot pot, the future growth point of Yihai International, on the one hand, still depends on Haidilao International Holding's business performance, and the other lies in the growth of third-party business.

First of all, from the perspective of the fastest-growing third-party business, revenue from third-party hot pot materials increased by 76.8% in the first half of 2017 compared with the same period last year, compared with 66.6%, 73% and 14.6% in 2014-2016, respectively, reflecting the new brilliance of third-party sales after the adjustment of the dealer channel structure of Yihai International.

During the peak season of hot pot consumption, Yihai International not only enjoys the rich income contribution from Haidilao International Holding, but also has considerable third-party sales, especially during the Spring Festival, many families choose to buy their own hot pot ingredients and ingredients to cook hot pot at home.

Zhitong Financial APP learned that before the Spring Festival this year, Yihai (Maanshan) Food Co., Ltd. implemented two shifts 24-hour production, in order to complete the production task of 1000 tons of spicy clear oil hot pot base and 300 tons of butter hot pot base before the Spring Festival holiday.

Yihai (Maanshan) Food Co., Ltd., invested 1 billion yuan by Yihai International Holdings, mainly produces and sells Haidilao International Holding brand hot pot base, hot pot dipping and Chinese-style compound condiments, reaching production and marketing of more than 1 billion yuan the year after production. at that time, it will become the largest production base of Yihai. It is worth noting that the project was originally scheduled to start production in May 2018, but then advanced to trial production in November 2017 and formal production in December.

On the other hand, nearly 70% of Yihai International's income comes from Haidilao International Holding and its affiliated companies, and the company's future performance depends largely on Haidilao International Holding.

Zhang Yong, chairman of Haidilao International Holding, has said that revenue is expected to grow by more than 30 per cent to 10 billion yuan with 80 new stores opened in 2017. Zhitong Financial APP has pointed out that from the analysis of past data of Haidilao International Holding and Yihai International, the growth rate of sales of related parties by Yihai International is close to that of Haidilao International Holding's stores, and slightly faster than the growth rate of stores.So whether Haidilao International Holding has achieved the goal of accelerating expansion, and whether Yihai International can achieve higher-than-expected growth as a result, the answer will be revealed in the upcoming annual report.

As of February 23, Yihai International rose 39.76% in two weeks to close at HK $11.74, hitting HK $11.98 on the day, the highest since its listing.