Core Viewpoint - The IPO of "Yujian Xiaomian," a Chinese noodle restaurant chain, faced a cold reception in the capital market despite having all the elements of a "blockbuster IPO," including significant oversubscription and backing from prominent investors. The stock dropped 27.84% on its first day, raising questions about valuation bubbles and the company's ability to expand nationally [2][16][19]. Group 1: Company Overview - As of mid-2025, Yujian Xiaomian operates 465 stores, with a strong presence in Guangdong, but lacks locations in its origin market of Sichuan-Chongqing, raising concerns about its national expansion capabilities [2]. - The company has been profitable for two consecutive years, but same-store sales and average order values have been declining, attributed to price reductions aimed at enhancing customer experience [7][14]. - Yujian Xiaomian plans to open 520 to 610 new stores in the next three years, focusing on lower-tier cities and international markets, with a goal to exceed 500 stores by the end of the year [5][14]. Group 2: Market Dynamics - The restaurant industry in China has increasingly adopted a pre-prepared food model, which has sparked debates about consumer rights and the quality of dining experiences [3][19]. - The competitive landscape includes various local and international chains, with Yujian Xiaomian facing challenges from established brands in the noodle segment, particularly those offering higher-quality, freshly prepared options [7][19]. - The rise of food delivery services has created new growth opportunities for the restaurant sector, but noodle dishes face inherent challenges in maintaining quality during delivery [10][11]. Group 3: Financial Performance - Yujian Xiaomian's revenue grew from 4.18 billion RMB in 2022 to 11.54 billion RMB in 2024, with a compound annual growth rate of 66.2%. Net profit also improved significantly, reaching 607 million RMB in 2024 [14]. - On its first trading day, the company’s dynamic and static price-to-earnings ratios were 41 and 58, respectively, which are significantly higher than those of comparable restaurant stocks [17]. - Following the IPO, major investors, including Hillhouse Capital, faced substantial losses due to the stock's poor performance, highlighting the volatility in the market [18].

Investment Rating - The report initiates coverage on Beike with a "Buy" rating and a target price of HKD 65.64, based on a 26x adjusted PE for 2026 [2][10]. Core Insights - Beike is positioned as a leading O2O real estate transaction platform in China, benefiting from supportive policies that are expected to facilitate a moderate market recovery. The company is anticipated to improve its profitability through enhanced operational efficiency and AI integration in its services [6][19]. - The real estate market is stabilizing, with signs of recovery in sales, particularly in second-hand housing, although challenges remain in new housing sales and inventory management [7][10]. - Beike's brokerage business is expected to gain market share, driven by its extensive network and the integration of third-party stores, which will enhance its revenue contribution [8][10]. Summary by Sections Business Overview - Beike has restructured into four main business lines: brokerage, home decoration, rental services, and data-driven residential development, aiming for a synergistic growth model [23]. - The company operates over 60,000 stores and employs nearly 568,000 agents, significantly outpacing competitors in terms of scale and market coverage [24][29]. Financial Projections - Revenue is projected to grow from RMB 93.46 billion in 2024 to RMB 125.93 billion by 2027, with a compound annual growth rate (CAGR) of approximately 11% [5][10]. - Adjusted net profit is expected to improve significantly, reaching RMB 9.82 billion by 2027, supported by operational leverage and a turnaround in the home decoration segment [10][21]. Market Dynamics - The real estate sector is gradually stabilizing, with government policies aimed at supporting the market. The demand for second-hand homes is expected to increase, while new home sales face ongoing pressure [7][10]. - Beike's home decoration business is projected to achieve a revenue of RMB 204 billion by 2027, with a net profit margin of around 10% [21][22]. Competitive Advantages - Beike's competitive edge lies in its channel advantages and the ACN network, which enhances transaction efficiency and transparency [19]. - The company is leveraging AI tools to improve customer experience and operational efficiency across its service offerings [20][21].