Jiumaojiu (9922.HK) acquired 3.24% of Tai-Er Catering
- JMJ acquires a 3.24% stake in Tai Er Catering for Rmb199.5m, valuing the company at Rmb6,159m, while the selling parties retain 8.76%, with the remainder owned by JMJ
- We viewed the acquisition valuation as reasonable at an annualised PE of 19x despite being at a premium to JMJ’s current valuation, given stronger growth trajectory for Tai Er.
- The transaction to be well supported by JMJ’s strong net cash position, with earnings impact expected to be minimal for FY23E/FY24E.
- Our last rating stood at Buy; TP unchanged
JMJ will pay Rmb199.5m for 3.24% stake of Tai Er Catering, implying market valuation of Rmb6,159m, from Tai-Er management team. With the disposal of 3.24%, the vendor (include 4 key personnel, and others) would have a remaining stake of 8.76%. This is the first time that such option has been exercised, and we do not rule out further disposal ahead. To recall, Tai-Er Catering structure was set up originally to align the management’s interest with the Group. JMJ has around 496 Tai Er operating outlets, with a total store count including other brands at 621 as of Jun’23. This implies the Company is paying around Rmb12m/outlet in market valuation. In 1H23, JMJ achieved Tai Er brand sales and store level OP of Rmb2,184m, and Rmb467m respectively, and accounted for 76% and 81% of total respectively. Store level OP margin stood at 21.3% (1H22: 16.5%), upon China’s reopening.
We estimate the annualised transacted PE should be around 19x which we considered as reasonable, despite at a premium to its current trading value. As the transaction is of a connected party, the Company will be required to voting on relevant Board resolution related to the acquisition (with Mr. He Chengxiao, the ED & limited partner of the Vendor abstaining). However, it is exempted from releasing independent financial advice & independent shareholders’ approval requirements. JMJ stood at net cash position of Rmb1.86bn as of Jun’23, hence it has more than sufficient to fund this internally while remaining in strong cash position. Based on our preliminary estimates, we estimate <1%/1.5% earnings positive impact in FY23E/FY24E. Our last rating stood at a BUY, with TP unchanged at HK$15.4.