Jiumaojiu Earnings: Management Inches Up 2023 Unit Opening Guidance

No-moat Jiumaojiu’s 09922 first-half earnings were in line with the positive profit alert issued in July. Management inched up its 2023 unit opening target that is in line with our estimates. As there were no major surprises, we are maintaining our HKD 13.70 fair value estimate, and we continue to believe the shares are fairly valued.

In the first half of 2023, revenue increased 52% year over year. The restaurant industry is one of the biggest beneficiaries of China’s reopening, and Jiumaojiu’s strong results show how quickly the industry is recovering from lows in 2022. That said, China’s weak macroeconomic conditions remain an overhang on restaurant sales, evidenced by Tai Er’s first-half same-store sales, which were at just 86% of prepandemic levels. The group opened 65 net new units in the first half, translating to about 12% restaurant unit growth compared with the end of 2022. Management remains optimistic about unit opening opportunities and expects to open 168 units in 2023, up from 158 previously. Adjusted operating profit was CNY 566 million, more than double the same period last year, reflecting the positive impact of sales leverage.

We continue to expect 2023 to be a strong recovery year for Jiumaojiu, including above 60% revenue growth and operating margins returning to double digits. Our fair value estimate implies a 2023 P/E ratio of 30 times, valuing Jiumaojiu at a premium compared with Haidilao and Xiabuxiabu. We believe the firm deserves this valuation premium due to its stronger brand image, better unit economics, and more compelling unit expansion potential. With shares trading just around our fair value estimate, we believe the market fully recognizes the strength of Jiumaojiu’s restaurant portfolio, so we suggest investors wait for a wider margin of safety before buying into this name.