In fiscal year 2021 (as of March 31, 2021), sales in Hong Kong fell 19.8% from a year earlier (- 26.9% in the first half of 2021 / 11.7% in the second half of 2021). Among them, sales of fast food and beverage fell 15.4% year on year (same store sales:-14%; porridge noodles:-11%), leisure catering sales fell by 20.2% (first half:-30.7%, second half:-6.3%), while institutional catering sales fell by 44.1%.
The company closed four stores in Hong Kong and the number fell to 352 in fiscal year 2021. The company has upgraded its technology to better drive takeout and takeout sales and cut its total workforce by 3.8 per cent to 18100 to improve store productivity.
Given the low base effect of last year and the relaxation of social segregation, although the catering industry still faces a 50% attendance requirement, we expect same-store sales of the company's brands to improve month by month in 2022. We expect casual food to recover faster than fast food, while our current sales forecast is only slightly below the level of fiscal year 2020, meaning sales in fiscal 2022 are expected to grow by 16.1% year-on-year. Given the postponement of wage increases, current rental costs currently 10 per cent lower than they were in 2019, and relatively stable local raw material costs, we expect operational leverage to start to work.
Chinese mainland: accelerate expansion
Chinese mainland sales in fiscal 2021 grew 10.1% from a year earlier (- 9.2% in the first half to 34.7% in the second half of the year), accounting for 17.9% of total sales (13.7% in fiscal 2020). In fiscal year 2021, the company opened seven new stores in Chinese mainland, bringing the total number of stores to 121 at the end of the period. The company plans to open 30 new stores at an accelerated pace in fiscal year 2022, with key cities in Guangzhou and Shenzhen.
Although previous repeated outbreaks in Guangdong have reduced sales in the region by about 30 per cent (accounting for about 1/3 of the company's Chinese mainland sales), taking into account the low base and the weakening impact of the outbreak in other regions, we expect same-store sales to maintain strong double-digit growth. Based on the assumption of 20% growth in same-store sales and 24.8% growth in new stores, we expect Chinese mainland sales to grow by 43.6% in fiscal 2022 compared with the same period last year.
Given a "overweight" rating and a target price of HK $19.3, there is implied room for an increase of 22%. We believe that the impact of the epidemic will gradually fade and the company's business will recover soon. Considering the company's lower-than-expected performance in fiscal 2021 and the market environment in which it is difficult to raise prices, we cut our revenue / net profit forecast for fiscal 2022 by 4.2% and 17.9%. We introduce the profit forecast for fiscal year 2024 and give the company an "overweight" rating, with a target price of HK $19.3 under the DCF valuation method, implying 27.7 times PE for fiscal year 2022. The company's current share price corresponds to 21.0 times PE in fiscal year 2022 (EPS is HK $0.70), with a historical average valuation of 27.4 times.