Catering sales growth likely improved in 4Q23F
- We expect solid growth numbers for China’s catering players over the New Year Day holidays from 30 Dec 2023 to 1 Jan 2024.
- We believe catering players’ same-store-sales growth and table turnover rates improved qoq/yoy in 4Q23F, driven by holiday consumption and last year’s low base.
- Haidilao said its Dec 2023 table turnover rate improved by 10% mom and jumped by more than 100% yoy to almost Dec 2019’s level.
- We reiterate Overweight on China’s catering sector, with Haidilao as our top pick.
Solid catering growth over New Year Day holidays
According to the China Catering Association, catering sales grew by 27.9%, 9.4%, 43.7%, 28.8% yoy in Beijing, Chongqing, Sichuan, and Qingdao, respectively, during the New Year Day holidays from 30 Dec 2023 to 1 Jan 2024. Meituan also reported that the gross transaction value (GTV) for its online catering business grew by 230% yoy during the New Year Day holidays, with Shanghai, Beijing, Chengdu, Shenzhen, and Guangzhou as the five highest growth locations. Many restaurants launched new menus during the holidays to attract customers. For FY24F, we expect major catering players to continue to focus on improving store efficiency and margins, rather than accelerating store opening plans.
Haidilao’s table turnover rates improved mom from Oct to Dec 2023
Haidilao said its table turnover rates improved mom from Oct to Dec 2023, given the greater popularity of hotpot consumption during the cold winter months. For the New Year Day holidays (30 Dec 2023 to 1 Jan 2024), its table turnover rate improved 60% yoy to reach the level it attained pre-pandemic in 2019 — overall table turnover rate on 31 Dec reached 8 times, according to management. For FY23, Haidilao opened nine new stores and resumed operations of 30 stores that had been temporarily closed earlier. However, it also shuttered some underperforming stores; we estimate 5-10 net store openings in FY23F.
For FY24F, we do not expect the company to accelerate new store openings given macroeconomic uncertainties, but instead continue to focus on improving store efficiency, services and menus to attract customer volume and drive up margins.
Jiumaojiu saw solid improvements in Dec 2023
In Dec 2023, Jiumaojiu’s Taier brand saw its same-store-sales (SSS) grow by 42% yoy to 80% of its 2019 level (vs. 76% in Nov 23, 77% in Oct 23, and 75% in Sep 23). Taier’s table turnover rate reached 4.0x in Dec 23 (+71% yoy) (vs. 3.7x in Nov 23, 4.0x in Oct 23, and 3.6x in Sep 23). Song Hotpot’s SSS returned to positive growth in Dec 23 at +8% yoy (vs -20% in Nov 23, -23% in Oct 23, and -16% in Sep 23). Song Hotpot’s table turnover rate reached 3.6x in Dec (+18% yoy). We also saw good mom progress in Dec 23, driven by various efforts to launch new menus, improve services and store efficiency. Jiumaojiu opened 134 Taier and 35 Song Hotpot stores in FY23, higher than its previous guidance of 120 new Taier stores. Of the 134 new Taier stores, 12 were in overseas locations, slightly lower than its previous guidance of 15 stores due to the more complicated nature of doing business in foreign markets.
Reiterate Overweight on China’s catering sector
We maintain our Overweight rating on China’s catering sector as we expect catering sales growth to continue to lead overall retail sales growth in FY24F. In 11M23, China’s catering sales grew by 19.4% (vs. 7.2% for overall social retail sales), according to the National Bureau of Statistics. In addition, we think China’s catering sector has solid long-term growth potential, given its relatively low restaurant chain rate of 18.1% in 2022 (vs. 58% in the US, 56% in Japan, and 48% in South Korea). The valuations of China’s catering players are also undemanding, in our view, with Haidilao and Jiumaojiu trading at 13.6x and 11.1x FY24F P/E, respectively. Key downside risks to our Overweight sector rating are: 1) weaker-than-expected catering sales in FY24F, and 2) higher-than-expected rental and labour costs. Potential re-rating catalysts include a better recovery in table turnover and operating margins.
