汇丰银行-中国-餐饮行业-中国餐饮：火锅及调味品——四大行业领导者研究-2019.5-75页.pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Equity Research ReportChina Catering Hotpot and condimentsMay 2019Equities/Food&BeverageFood&BeverageMay 2019By:Katharine Song(S1700517120001)China Catering Hotpot and condimentsComing to the boil initiate on four industry leadersHotpot,one of Chinas signature dishes,is the fastest-growing cuisine in the country We show how the leaders can expand their restaurant chains and their profits in a fragmented hotpot marketWe prefer Haidilao(initiate at Buy),the biggest Chinese cuisine company in the world.Initiate with Buy on Xiabuxiabu and Holds on Yihai International and Fuling ZhacaiSP OTLIGHT 1 Equities Food&Beverage May 2019 Everyone loves hotpot Its a quintessentially Chinese social phenomenon family,friends or office colleagues sampling the delights of a communal spicy hotpot in a packed restaurant.Hotpot is one of Chinas signature dishes and,unlike many other types of Chinese cuisine,is available in just about every city and town in China.Its also a big business opportunity hotpot is the fastest growing sector in the countrys catering market.This report looks at both the hotpot restaurant industry and the related business of the tasty condiments that go into the broth.We initiate coverage on four leading companies.Haidilao is classic story of how a small restaurant-owner became a US dollar billionaire.Billed as the biggest Chinese cuisine company in the world,this rapidly expanding hotpot chain now runs 466 restaurants in China and has outlets in Singapore,Korea,Japan and the US.Xiabuxiabu,another leading hotpot company,has 934 restaurants with a focus on northeastern China and more of a fast-food feel.Yihai is the second-largest hot pot condiment manufacturer,Fuling Zhacai is the largest processor of pickled food in China.We think greater scale and strong supply chains are the keys to success as the market consolidates.Why read this report?Hotpot,one of Chinas signature dishes,is the fastest-growing cuisine in the country.This also benefits condiment companies We show how the leaders can expand their restaurant chains and their profits in a fragmented hotpot catering market We explain why we prefer Haidilao,the biggest Chinese cuisine company in the world.We expect it to open 180 restaurants in 2019 Katharine Song*(S1700517120001)Head of A-share Food&Beverage and Pulp&Paper Research HSBC Qianhai Securities Limited +86 755 8898 3142 Joseph Zhou*(S1700118040012)Associate Shenzhen*Employed by a non-US affiliate of HSBC Securities(USA)Inc.and not registered/qualified pursuant to FINRA regulations Equities Food&Beverage May 2019 2 Why read this report?1 Facts and figures 3 Related research 4 Take a seat at the hotpot table 5 Industry outlook 12 Company Section 21 Haidilao International(6862 HK)22 Xiabuxiabu(520 HK)36 Yihai International(1579 HK)46 Fuling Zhacai(002507 CH)56 Disclosure appendix 69 Disclaimer 72 Contents 3 Equities Food&Beverage May 2019 Facts and figures 9.4%CAGR For Chinas catering market,we forecast a CAGR of 9.4%over 2019-21e 14%Hotpot has a 14%market share in Chinese cuisine The hotpot restaurant market is highly fragmented,but is growing faster than other cuisines.7%We estimate that the top five hotpot chains have only 7%of the hotpot restaurant market 3.2%Haidilao is the biggest hotpot company,with a 3.2%market share 160m Haidilao served more than 160m guests in 2018 5.0 times Haidilao had an average table turnover rate of 5 times per day in 2018 13.8%CAGR Hot pot condiment revenue is expected to rise at a 2017-21e CAGR of 13.8%The popularity of hotpot cuisine is also driving a boom in the condiment market.Hotpot condiment leaders,such as Yihai,have grown rapidly.934 restaurants Owned and operated under the Xiabuxiabu Group 2nd and 1st Yihai is the second-largest hotpot condiment player,but first in high-end hotpot products Equities Food&Beverage May 2019 4 Related research Recommended reading Making money from Chinese demographics:The rise of Chinas empty-nesters,10 May 2018 Relevant series China Food Products Initiating coverage:Tickling investors taste buds,16 January 2018 5 Equities Food&Beverage May 2019 Tickling the taste buds Its a quintessentially Chinese social phenomenon family,friends or office colleagues sampling the delights of a communal spicy hotpot in a packed restaurant.The cuisine is hundreds of years old and,unlike many of its rivals,is available in just about every city and town in China.Its also a big business opportunity hotpot is the fastest-growing sector in the countrys catering market.This report looks at both the hotpot restaurant industry and the related business of the tasty condiments that go into the broth.We initiate coverage on four companies.Haidilao is classic story of how a small restaurant-owner became a US dollar billionaire.Billed as the biggest Chinese cuisine company in the world,this rapidly expanding hotpot chain now runs 466 restaurants in China and has outlets in Singapore,Korea,Japan and the US.Xiabuxiabu,another leading hotpot company,has 934 restaurants with a focus on northeastern China and more of a fast-food feel.Yihai is the second-largest hot pot condiment manufacturer,while Fuling Zhacai is the largest processor of pickled food in China.We think greater scale and strong supply chains are the keys to success as the market consolidates.First,lets place hotpot in the context of Chinas huge restaurant market.The restaurant market Chinas catering service industry is a RMB4.3trn market,but is highly fragmented and is dominated by standalone restaurants.Its a fast-growing market,with a revenue CAGR of 11%over 2014-18,according to the National Bureau of Statistics(NBS).Thats faster that the growth in the overall China retail market.We forecast a CAGR of 9.4%over 2019-2021e.The drivers are the same as in some many other parts of Chinas consumer market urbanisation and consumers wanting higher-quality products,as well as an increasing preference among wealthier Chinese citizens for dining out.Chinese restaurants come with their particular set of challenges,especially for the big chains looking to expand quickly.First,they are difficult to standardise as there are so many different cuisines,most of them regional,making them reliant of specialist chefs.Consumer preferences change quickly,too,as people with more money in their pockets become ever-more picky.This market is also highly fragmented.According to a report published by the China Hospitality Association(2018),Chinas top-100 catering groups generated revenue of over RMB200bn,but this accounted for only 5%of the total.Take a seat at the hotpot table One of Chinas signature dishes,hotpot is the fastest-growing cuisine of the countrys catering market.Its popularity is also driving a boom in the condiments that make the dish so tasty.The hotpot market is fragmented but we expect the leaders to emerge as catering giants.We initiate with Buy ratings on Haidilao and Xiabuxiabu and Hold ratings on condiment companies Yihai International and Fuling Zhacai.Haidilao is our preferred stock.Hotpot is a big business opportunity Chinas catering service industry is highly fragmented Equities Food&Beverage May 2019 6 Hotpot chains,on the other hand,have a number of advantages.Hotpot is eaten throughout the country,has a highly standardised format,customised flavouring,and is strongly associated with social gatherings.It remains hugely popular,as shown by the fact that hotpot restaurant market is growing faster than other parts of the restaurant market.We forecast a 2019-22e CAGR of 10.2%,versus the industry average of 8.9%.This market is also very fragmented.We estimate that the top five hotpot chains have only about 7%of the hotpot restaurant market.This implies that there is plenty of room for the leaders to take more market share as they expand their chains,supported by a strong capital base,good supply chain management and the power of their brands.The popularity of hotpot is also very good news for the companies that make all the delicious condiments that go into the broth.According to the Frost&Sullivan,hot pot condiment revenue is expected to rise at a 2017-21e CAGR of 13.8%,faster than hotpot restaurant revenue.Many of these condiments can also be used in other types of Chinese food such as spicy stir-fry.Exhibit 1.China hot pot restaurant revenue Exhibit 2.China hot pot restaurant count Source:Frost&Sullivan Analysis,Haidilao IPO prospectus,HSBC Qianhai Securities estimates Source:D,HSBC Qianhai Securities estimates Initiate coverage of four companies Haidilao(6862 HK,Buy,TP of HKD34.28)Founded in 1994,Mr Zhang Yong and his co-founders have turned a simple hot pot restaurant into the worlds largest Chinese restaurant company with a market cap of USD19bn.Haidilao,which went public last year,has a 3.2%revenue market share in the hotpot restaurant market.The brand has become synonymous with outstanding service and the company has an attractive employee incentive scheme and a bottom-up expansion model.It recorded a 82%CAGR in net profit over 2016-18 and now has 466 restaurants after opening 200 in 2018 and 98 in 2017.Despite this rapid pace of expansion company has maintained strong operating metrics average table turnover rate remained 5.0 times per day in 2018,the same as in 2017,and same-store sales and per guest spending are increasing.Haidilao has built a strong supply chain covering nearly all its restaurant operating units.It also plans to keep expanding overseas.We expect revenue and net profit to both grow at a CAGR of 41%over 2019-21e.0%2%4%6%8%10%12%14%01002003004005006002013 2014 2015 2016 2017 2018 2019e(RMB bil)China hot pot restaurant revenuey-o-y406 533 700 0100200300400500600700800201320182022e(thousand)No.of hot pot restaurants(thousand)A simple hot pot restaurant became the worlds largest Chinese restaurant company 7 Equities Food&Beverage May 2019 Xiabuxiabu(520 HK,Buy,TP of HKD15.27)The company is the leading casual hot pot chain,with a c1%market share.Xiabuxiabu opened 168 restaurants in 2018,bringing the total to 886(excluding Coucou).It is gradually upgrading its chain to the casual style and moving away from its original fast-food image(about 60%of its restaurants updated to a 2.0 version,with a new look).It has also launched a mid-market to high-end brand,Coucou,which has just started to contribute to operating profit.We expect revenue and net profit to grow at CAGRs of 23%and 21%,respectively,over 2019-21e.We are positive on the companys expansion strategy and expect Coucou to be a new driver.A quick comparison They are Chinas only listed hotpot companies.Both companies are expanding rapidly.Haidilaos network is more national,while Xiabuxiabu has more exposure in northern China.Both have built strong supply chains,which has created entry barriers.They are both starting to explore new markets and introduce new brands.We think this is a good strategy as it will help them expand nationally and it also reduces dependence on a single brand.US full-service restaurant leader Darden has achieved success by adopting a multi-brand strategy,and we believe the Chinese leaders will follow suit.Exhibit 3.Comparing the two hotpot restaurant leaders What they have in common _Where they are different_ Haidilao Xiabuxiabu Revenue CAGR over 2016-18 Fast expansion 43%25%Expanding network Continuing new openings Overall count from 273 to 466 Overall count from 759 to 934 Covering range Both brands are nation-wide 109 cities in China and overseas 111 cities in China,mostly in the north but moving south Supply chain Strong support from supply chain It has separate supply chains,run independently,food ingredient procurement,logistics,decoration and software services It has 2 domestic logistics hubs and 6 distribution centres.Globally it also sources ingredients from Europe,South America and Australia.Brand strategy Multi-brand strategy Haidilao and U-Ding Maocai Xiabuxiabu and Coucou Source:HSBC Qianhai Securities Yihai International(1579 HK,Hold,TP of HKD39.10)Yihai,the second-largest hotpot condiment manufacturer,with an 8.7%market share in 2018,was initially Haidilaos hot pot flavouring factory.Yihai was spun off from Haidilao in 2013 and then was listed in Hong Kong in 2016;it is a related company of Haidilao.The company is also developing new brands and building up its third-party business,which accounts for 56%of total revenue.We expect revenue and net profit to grow at CAGRs of 30%and 32%over 2019-21e.We initiate coverage with a Hold rating as we think the stock is fairly valued as the positives are already priced in.New products could bring uncertainty to margins in 2019.Fuling Zhacai(002507 CH,Hold,TP of RMB29.86)With a 42%market share,Fuling Zhacai Group is the largest pickled food processing enterprise in China.The company,a state-owned enterprise(SOE),has three main product categories zhacai(a type of pickled mustard plant),marinated vegetables and other appetisers.It operates under two major brands,Wuijiang for zhacai and Huitong for marinated vegetables.Fuling has been improving its margins in recent years.In 2018 gross margin was over 50%and net profit margin 35%.Fuling has strong bargaining power and it has offset the increase in production costs by raising prices three times since 2016.We forecast a revenue CAGR of 14%Equities Food&Beverage May 2019 8 and a net profit CAGR of 15%over 2019-21e.We expect earnings growth to slow down given that the company has nearly half of the pickled product market in China.HSBC Qianhai Securities versus consensus Our forecasts for Haidilao and Xiabuxiabu are slightly higher than the Streets,as we are more positive about their long-term growth prospects.For Yihai International and Fuling Zhacai,we are slightly below consensus.While we like the fact Yihai International is seeking new business and developing new brands,we think the positive factors are priced in.Fuling Zhacai is such a dominant market leader that are concerned that the revenue growth may slow down as it will be difficult to further increase its market share.Exhibit 5.HSBC Qianhai versus consensus Actual _HSBC Qianhai estimates_ _Consensus_ _Difference_ RMBm 2018 2019e 2020e 2021e 2019e 2020e 2021e 2019e 2020e 2021e Haidilao Revenue 16,969 27,189 37,747 47,417 26,917 36,807 44,713 1.1%2.5%6.0%Net profit 1,646 2,684 3,742 4,625 2,613 3,617 4,508 2.8%3.4%2.6%Xiabuxiabu Revenue 4,734 6,164 7,601 8,907 5,960 7,180 8,410 3.4%5.9%5.9%Net profit 462 551 695 825 553 685 829 -0.4%1.5%-0.4%Yihai Inter Revenue 2,681 3,649 4,743 5,926 3,817 5,029 7,001 -4.4%-5.7%-15.4%Net profit 518 709 942 1,202 684 894 1,259 3.6%5.3%-4.5%Fuling Zhacai Revenue 1,914 2,206 2,502 2,829 2,325 2,780 3,266 -5.1%-10.0%-13.4%Net profit 662 785 891 1,016 811 988 1,164 -3.2%-9.8%-12.7%Source:Bloomberg,Wind,HSBC Qianhai Securities estimates Valuation US li