Main points of investment
Net profit fell 17.7 per cent year-on-year in 2015, with total revenue of HK $3.129 billion, down 5.8 per cent, and net profit of HK $220 million, down 17.7 per cent from a year earlier, slightly below Bloomberg market consensus expectations of 2 per cent and 8 per cent, respectively. Realized earnings per share of 25.26 cents, with a final dividend of 12 cents. The retail industry has suffered from the impact of e-commerce and intensified competition in the same industry, resulting in a decline in revenue.
Same-store sales fell and net profit margins fell: in 2015, same-store sales fell 7.5 per cent in the mainland, while Hong Kong rose 6 per cent. As of the end of 2015, only 38 of the company's 673 stores were in Hong Kong. The company expects to open 80 new stores in 2016, mainly in the mainland, while closing 30 expired and loss-making stores. The company's capital expenditure budget for 2016 is 180 million yuan. Benefiting from lower costs, gross profit margin rose 0.5ppt to 69.6% year-on-year in 2015, but rental fees as a share of revenue increased 0.8ppt, and the company's 2015 net profit margin fell 0.9% from a year earlier.
Cooperate with Baidu, Inc. takeout to develop new channels: in view of the poor same-store sales growth, the company has expanded new channels and has invested US $60 million in Baidu, Inc. takeout in 2015. At present, 400 stores have takeout business, with an increase of 100 expected in 2016, while 10 takeout stores will be opened in Beijing and Shanghai this year. Takeout accounted for 4.4% of the company's restaurant revenue in 2015, and the company expects it to reach 10% this year.
Our point of view: the company's takeout business is expected to bring new growth points, but the base is still relatively low, coupled with the aging of brands and consumer diversion brought about by fierce competition will still be a great challenge for the company. According to market consensus expectations, the company's revenue and net profit in 2016 will be the same as in 2015, and the company's share price is now 13 times higher than that in 2016, so it is recommended to pay careful attention.
Risk tips: food safety; raw milk prices fell more than expected; fees paid much more than expected