Tam Tsai International Limited (Tam Tsai International), the largest Asian pasta restaurant in Hong Kong, has recently submitted an application for listing to the Hong Kong Stock Exchange. The company, which operates two fast leisure chain restaurants in Hong Kong, Tan Tsai Yunnan Rice Noodle and Tan Tsai Sango Rice Noodle, is loved by Hong Kong people because of its rice noodles.
Zhitong Financial APP notes that Tam Tsai International is a household name in Hong Kong in terms of influence. According to Euromonitor, Tam Tsai International ranks first in the field of Asian pasta restaurants with a market share of 58.5% in 2019, and ranks second in fast leisure restaurants with a market share of 7.4%. Ranked fifth in the leisure restaurant sector with 2.5% market share.
The largest Asian pasta restaurant in Hong Kong
According to the Tam Tsai International prospectus, the first restaurant under the Tam Tsai brand opened in 1996 and the first restaurant under the three Brothers brand in 2008. After years of development, as of April 7, 2021, there are a total of 148 restaurants under the company's two brands, including 72 Tam Tsai restaurants and 72 Sam GE restaurants in 18 districts in Hong Kong, Kowloon and the New Territories, 1 Tam Tsai restaurant in Shenzhen, mainland China and 3 San GE restaurants in Singapore.
It means that although the company's business is concentrated in Hong Kong, the rice noodles of Tan Tsai and San GE brands learn from the characteristics of southwestern Chinese cuisine and creatively set 10 levels of spiciness to provide customers with a "mash-up" food experience. this standard has become a well-known measure of spiciness in Hong Kong food culture.
According to the prospectus, the signature soup bottoms of Tam Tsai International's brands, such as spicy and spicy soup, and signature dishes such as bandit chicken wings, are customers' favorite delicacies. According to Euromonitor, Tan Tsai and San GE brands enjoy a high reputation among the major Asian noodle shops in Hong Kong. According to a series of survey data conducted by a well-known market research institute, in 2019 and 2020, in terms of brand equity index (the industry's measure of brand awareness), Tan Tsai and San GE increased by 23% and 36% respectively. The taste and characteristics of the two brands of soup are very different, so that each brand has its own followers.
Short-term performance is disturbed by the epidemic
According to the disclosure of the prospectus, for the two financial years ended March 2019 and the end of March 2020, the company achieved income of HK $1.556 billion and HK $1.691 billion respectively, with a profit of HK $198 million and HK $191 million over the same period; up to the end of December 2019 and the end of December 2020, the company realized income of HK $1.304 billion and HK $1.298 billion, respectively, with a profit of HK $175 million and HK $232 million, respectively.
It should be pointed out here that Tan Tsai International's earnings in the nine months to the end of December 2020 were negative compared with the same period last year, but its profit increased by 33%. The deviation between the two sets of data is mainly due to government subsidies and rent concessions related to public health events received by the company during the period from April to December 2020. During the above-mentioned period, the company received a government subsidy of HK $126 million and a rent discount of HK $10.347 million related to public health events, compared with zero revenue in the same period in 2019. Excluding these two parts of income, the company's profit for the nine months to the end of December 2020 was about HK $95.64 million, down about 45 per cent from a year earlier. From this decline, we can see that the epidemic has had a greater negative impact on Tan Tsai International.
The epidemic has also had a far-reaching impact on Tan Tsai International's order structure. According to the prospectus, the company contributed HK $680 million in revenue from dining services in the nine months to the end of December 2020, down 31 per cent from a year earlier. Over the same period, revenue from takeout and food delivery services surged 94.1 per cent to HK $618 million, almost on a scale similar to that of restaurant services. The rapid growth of takeout and delivery service revenue has also made up for the loss of the company's restaurant service revenue to a large extent.
"only when the vicissitudes of the sea flow across the sea can we show the nature of a hero." Zhitong Financial APP believes that although the epidemic has caused a short-term disturbance to the company's performance, Tan Tsai International's timely and flexible style in the special period may help it get rid of external interference more quickly in the post-epidemic era and continue its previous performance growth. For example, during the epidemic, without any layoffs, the company adopted to shorten the business hours of some restaurants and adjust manpower planning to cope with the change from restaurant orders to takeout and delivery orders. the direct result of this measure is the decline in labor costs of the company. It is reported that in the nine months to the end of December 2020, the staff cost of the company's restaurant was HK $329 million, down 4.9% from the same period a year earlier.
Tan Tsai International's food is very suitable for takeout and delivery, which also adds assurance for the company to stand out in the competition in the post-epidemic era. As mentioned earlier, the company's products are mainly rice noodles, and these foods can be prepared and cooked in a relatively simple and rapid process. This feature also enables Tam Tsai International stores to quickly meet takeout and delivery orders during peak hours and achieve higher sales. According to Euromonitor, many consumers in Hong Kong are used to ordering takeout during the blockade of the epidemic. In the future, even if consumers continue to eat in restaurants after the end of the epidemic, as the habit of ordering takeout has been maintained for a long time, online ordering and food delivery will still be the mainstream trend.
The effect of internationalization and accelerating the opening of stores can be expected.
As mentioned earlier, Hong Kong is the cradle and stronghold of Tan Tsai International. In terms of the number of stores, more than 97% of the company's stores were located in Hong Kong as of April 7, 2021; in terms of revenue, the company's revenue from Hong Kong accounted for more than 99% of the total revenue in the nine months ended December 2020.
However, one signal that needs to be taken seriously is that the prospectus reveals that Tam Tsai International is planning to expand aggressively outside Hong Kong. According to the prospectus, the company plans to open about 44, 55, 24, 25 and 15 new restaurants in Hong Kong, mainland China, Singapore, Japan and Australia respectively by March 31, 2024, all of which are operated by Tam Tsai International. In fiscal year 2022-2024, the company plans to open 45, 55 and 63 stores respectively.
Zhitong Financial APP believes that Tan Tsai International's store opening plan has released at least two layers of intention to the outside world. The first intention is that, as mentioned above, Tam Tsai International clearly intends to expand outside Hong Kong. According to the prospectus, Tan Tsai and San GE, two brands of Tam Tsai International, are fast leisure restaurants. According to Euromonitor, Hong Kong's fast leisure restaurants will grow at a compound annual growth rate of 2.1% in revenue terms from 2019 to 2024, and the market size is expected to reach HK $25.4 billion by 2024. For comparison, the annual compound growth rate of fast leisure restaurants in mainland China over the same period is about 4.9%, and the market size will reach US $103.5 billion by 2024, while Singapore's CAGR is 3.7% and is expected to reach US $1.4 billion by 2024. According to the comparison of the three sets of data, it is clear that the market growth rate of fast leisure restaurants in mainland China and Singapore is higher than that in Hong Kong, and the market size in mainland China is much higher than that of the latter. This may also explain why Tam Tsai International has chosen mainland China as the region with the largest number of planned stores in the next three financial years.
The second layer of intention, in terms of quantity, the company intends to speed up the pace of store opening. As mentioned earlier, the company opened its first store in 1996, but the number of stores did not reach 100 until 2017. As of April 7 this year, the company had a total of 148 stores, almost all of them concentrated in Hong Kong. It is not difficult to see that before Tan Tsai International's store opening strategy tends to be stable, and even quite conservative. But in the next three financial years, the company plans to open as many as 163 stores, even more than the total number of stores currently in the company, without considering the closure or closure of the business.
In its prospectus, the company says its highly standardized and scalable business model will contribute to future development. However, what needs to be noticed by investors is that Tam Tsai International is expected to expand faster than ever before. in the pursuit of speed, how to ensure stable and high-quality food and services at the company level will further test the company's management level. In addition, Tam Tsai International does not have much practical experience in the market outside Hong Kong, and how to deal with external competition will also become a major attraction in the process of wantonly entering new markets such as mainland China and Singapore.
One thing that can be expected, however, is that the pace of new stores and developments in markets outside Hong Kong will have a crucial impact on Tam Tsai's future performance.