12 Dec 2025 01:08:59 ET │ 12 pages Haidilao International Holding Ltd (6862.HK) Top Buy in China Restaurant Industry; Open 30D Positive Catalyst Watch CITI'S TAKE In the Central Economic Work Conference (CEWC) concluded yesterday (Xinhua, Dec 11th), the government highlighted its plan to "eliminate unreasonable restrictions on consumption and boost service consumption" as one of the priorities in pro-consumption policy execution in 2026E. With this context, we reasonably expect government's easing of anti-e ...

Investment Rating - The investment rating for Haidilao International Holding Ltd is maintained as "Buy" with a target price of HK$18.50, indicating an expected share price return of 31.5% and an expected total return of 33.3% [4][7]. Core Insights - Haidilao experienced low single-digit year-over-year growth in table-turn in October, showing significant month-over-month improvement compared to a largely flat performance in the third quarter [1][2]. - Management anticipates less pressure on table-turn in the fourth quarter of 2025 due to seasonally cold weather and a low comparison base from the previous year, along with positive momentum expected in the first quarter of 2026 due to a longer Chinese New Year holiday period [1][2]. - The gross profit margin (GPM) improved sequentially in the third quarter of 2025, reaching 60.2%, aided by menu optimization efforts and lower labor costs [3]. - Management plans to terminate several loss-making pilot programs in the first quarter of 2026, which is expected to yield operational expense savings for the full year [3][4]. Summary by Sections Sales Performance - Table-turn growth in October was driven by holiday consumption, effective consumer activation campaigns, and remodeled stores catering to new scenarios such as nightlife and family gatherings [2]. - The average selling price (ASP) for dine-in increased slightly in the third quarter of 2025, attributed to a higher mix of premium items [2]. Store Operations - Haidilao opened 59 new stores and closed approximately 60 stores while transferring over 50 stores to franchisees in the first ten months of 2025 [2]. - Delivery sales grew approximately 100% year-over-year in the third quarter of 2025, with projected delivery sales reaching around RMB 2 billion for the full year [2]. Margin Analysis - The GPM improved sequentially in the third quarter of 2025 compared to the first half of 2025, supported by menu optimization and reduced labor costs [3]. - Despite the improvement, 16 new piloting brands remain loss-making on an aggregate basis, prompting management to consider program terminations [3][4]. Valuation - The target price of HK$18.50 is based on a 12x 2025E EV/adjusted EBITDA, aligning with the trading average of global restaurant peers [7].

Summary of Haidilao International Holding (6862.HK) Earnings Call Company Overview - **Company**: Haidilao International Holding - **Ticker**: 6862.HK - **Market Cap**: HK$82.9 billion / $10.6 billion - **Industry**: Restaurant and Food Service Key Financial Metrics - **1H25 Sales**: RMB 20.7 billion, a decline of 3.7% year-over-year (yoy) [1][4] - **Net Profit**: RMB 1.76 billion, a decline of 14% yoy, missing expectations by 8% [1][13] - **Recurring Net Income**: RMB 1.55 billion, a decline of 27% yoy [1][13] - **Interim Dividend**: HK$0.338 per share, with a payout ratio of 95% [1][14] - **Operating Income**: RMB 2.2 billion, with an operating profit margin (OPM) of 10.6%, missing expectations of 11.8% [11][16] Sales and Revenue Insights - **System Sales**: Declined by 6.5% yoy in 1H25 [3] - **Revenue from Haidilao Restaurants**: Below expectations due to a reduction in store count and lower per store sales [4] - **Delivery Revenue**: Increased due to the rapid growth of single-serving fast food business [4] - **Same-Store Sales Growth (SSSG)**: Overall group SSSG was -10% yoy, with variations across tiers [5] Operational Metrics - **Average Table Turn**: 3.8x in 1H25, down 10% from 4.2x in 1H24 [10] - **Store Count**: 1,322 stores, with 33 net closures in 1H25 [9] - **Average Selling Price (ASP)**: RMB 97.9 in 1H25, slightly up from previous periods [10] Cost and Margin Analysis - **Gross Profit Margin (GPM)**: Lower-than-expected due to increased labor and operational costs [1][11] - **Effective Tax Rate**: 33.2%, above expectations of 29% [13] - **Operating Expenses**: Increased in various categories, notably other expenses which rose by 23.4% yoy [16] Future Outlook and Strategic Focus - **Key Focus Areas for 2H25**: 1. Table turn trends and outlook 2. Pricing strategy and promotion trends 3. Margin outlook and potential for improvement 4. Store expansion plans, particularly for the Haidilao brand and new brands like Yanqing [2] 5. Progress on new brands and shareholder return plans [2] Investment Rating and Price Target - **Current Rating**: Neutral - **12-Month Price Target**: HK$15.30, with an upside of 2.8% from the current price of HK$14.88 [18][19] - **Key Risks**: Variability in table turn recovery, expansion speed, cost inflation, and food safety issues [18] Conclusion Haidilao International Holding has faced challenges in the first half of 2025, with declines in sales and net profit attributed to operational inefficiencies and increased costs. The company is focusing on strategic areas for improvement and expansion, while maintaining a stable dividend payout. The outlook remains cautious, with a neutral rating from analysts.