Haidilao's 1H24 results were roughly inline, but the margin was soft, given the meaningful SSSG. Going into 2H24E, we can still see certain pressure like drags from macro environment, high base for SSSG and staff costs inflation etc.

In our view, the extra upside could be from the acceleration in new stores opening, further plans to boost efficiency and new brands' development. Given the low valuation and attractive dividend, we maintain BUY.

Cautiously optimistic about 2H24E, extra upside could be from new stores opening or new CEO's initiatives to push margins and multi-brands. We have to give credit to Haidilao, as its SSS recovery rate had greatly outperformed the catering industry, thanks to its: superiority in customer services, members management, new product launches, marketing and advertising on social media, etc.. But going into 2H24E, we can see a number of challenges, such as the high base for SSSG (table turnover was actually flattish YoY in Jul 2024 while the ASP should be stable and therefore, we are now forecasting 0% to 5% SSSG in 2H24E) and hence limited the operating leverage (i.e. staff costs may stay high). This assumption is based on the already larger scale of advertising (e.g. crossover with IPs,) along with the new product launches in the autumn and winter seasons. We do expect benefits from 1H24 such as GP margin improvements and declining D&A expenses (as more and more restaurants have fully depreciated its original capex) to continue. And in our view, the additional upside (or segmental improvements) vs 1H24 could lay on: 1) potential acceleration in store numbers, where the Company is still targeting a MSD % increase (unlike a decline in 1H24), 2) further margin improvements from new initiatives to boost employee's creativity, motivation and costs savings, such as the sharing of store managers around stores, etc, 3) the "Red pomegranate" project, a multi-brand development strategy which is highly important for Haidilao's future growth. A new team was set up to optimize the incentive policies, encourage national leaders and provide the necessary resources to participate in new brand management.

There are four brands under the incubation stage and its Yanqing Barbecue Shop brand already has a rough plan to open 400 to 500 stores in around three years.

Maintain BUY but trim TP to HK$ 15.94, based on 16x FY24E P/E (cutfrom 20x to factor in the slowdown in net profit growth and sector de-rating).

We fine-tuned our FY24E/ 25E/ 26E net profit forecasts by -7%/ -1%/ +4% to factor in higher staff costs, but better GP margins (from low input costs, more bulk or direct purchases, more higher margin new products etc.). The stock is trading at 15x FY24E P/E, not too demanding, especially when we also consider the 6% dividend yield.