We have updated with the management after its positive 1H24 results (ASP hike and strong GP margin expansion) and turned slightly more positive about the company's outlook. While management's 3-year target is still roughly intact (HSD pre-tax/ net profit margin by FY25E or no later than FY26E), our estimate is more prudent (5.9% pre-tax/ 5% net profit margin in FY25E). Therefore, together with its undemanding valuation (13x FY25E P/E and 8% FY25E yield), we maintain our BUY rating and raise TP to HK$14.82. The new TP is based on 18x FY25E P/E (down from 23x), at par with its 5-year average.

1H24 results were better than expected, driven mainly by GP marginexpansion. In 1H24, sales/net profit increased by 11%/ 84% YoY to RMB 4.3bn/ 200mn and NP margin was at 4.6%, ahead of CMBI est. of 10% sales growth and 3% NP margin in FY24E. Group sales growth was roughly inline, but in fact that was a mixture of: 1) ordinary growth from CDC (SSSG and SSS recovery rate were only at 5% and ~88%), 2) strong growth from Super congee (SSSG and SSS recovery rate were at 8% and ~101%), 3) a strong rebound from institutional catering business (jumped by 21% YoY), and 4) healthy recovery from CDC mainland China (SSSG and SSS recovery rate were at 11% and ~100%). However, the major positive surprise was from GP margin expansion, to 12% in 1H24, far better than CMBI est. of 10% in FY24E, boosted by: 1) ASP hikes for CDC (by 8% to ~HKD 42.5), 2) fading out of discounts and coupons, and 3) a shift in product mix (rolled out more high-value items like steaks or high-margin items like curry rice). Dividend payout in 1H24 was at 44%, down from 54% in 1H23, however, we still think CDC could be generous in terms of dividend and expect a 90% payout in FY24E, implying a 6% dividend yield.

Outlook for sales growth in FY24E is still conservative. While SSSGrecovery rate continued to trend up in 1H24 (vs 2H23), we are still fairly conservative and expect a mild improvement in 2H24E and onwards (breakfast and lunch time had recovered much better than the supper time), because of the headwinds like: 1) weak local economic growth and 2) consumption trade-down and 3) a rise in outbound tourism (HKers going north to mainland China or overseas). In fact, CDC's market shares in the fast food industry fell slightly to 25.9% in 1H24 (from 26.6% in 2H23), because of external competition from other low-end fast food restaurants.

Maintain BUY and raise TP to HK$14.82. We revise up our net profitestimates by 33%/ 54%/ 47% in FY24E/ 25E/ 26E, to factor in: 1) higher- than-expected GP margin and 2) the stronger-than-expected operating leverage. We maintain BUY and lift TP to HK$14.82, based on 18x FY3/25E (down from 23x). The stock is trading at just 13x and has finally become attractive, compared to its 5-year average of 18x, in our view.