Positive profit alert
- JMJ recently released a positive profit alert in-line with strong earnings rebound as a result of China reopening
- JMJ store count reached 621 as of Jun 23, versus 475 in Jun 22
- Reiterate BUY on steady store expansion, but revised TP to HK$18.3 on lower valuation multiple to factor in weaker consumer sentiment in recent months
Investment Thesis
A fast-growing Chinese cuisine restaurant operator. Originating from Guangzhou, Jiumaojiu International (JMJ) is a fast-growing Chinese cuisine restaurant operator in China with a store unit count of 621 as of Jun 23 (Jun 22: 475) and a diverse brand portfolio including Tai Er, Jiumaojiu, Song Hot Pot, and Lai Meili Grilled Fish. We forecast the group to deliver revenue and earnings CAGRs of 32% and 314%, respectively, in FY22-24E, as a beneficiary of China’s reopening and the resumption of on-premise dining.
A beneficiary of China’s reopening. Tai Er grew to be the key contributor of the group, accounting for 78% of FY22 sales, followed by the JMJ brand (15%) and other brands (7%). Tai Er recorded the strongest recovery with its table turnover ratio reaching 4.2x in Jun 23 (Jun 22: 3.6x), followed by a Song Hot Pot table turnover ratio of 3.8x (Jun 22: 3.9x), while the JMJ brand table turnover ratio stood flat at 2.9x over the same period.
Sales recovery to drive operating leverage. For FY23E, JMJ has a gross store opening target of 120 Tai Er and 25 Song Hot Pot stores. As of Jun 23, JMJ has opened up to 46 Tai Er stores and 23 Song Hot Pot tores, and recorded a net store closure of one for the JMJ brand.
BUY with target price of HK$18.3 (vs. HK$25.7 previously). Our earnings assumptions are unchanged, while we adjust TP downwards to 30x FY24E PE, as a result of the weaker macroeconomic environment and softer consumer sentiment, which has driven down the sector multiples. The Company remains at a
slight premium to leading peers on the back of a strong earnings recovery. Our new TP stands at HK$18.3 (previously: HK$25.7, based on 40x FY24E PE). Key catalysts include stronger-than-expected performance from Tai Er and Song Hot Pot.