Company Reports

Haidilao's first-half revenue rose 8% to CNY 22.3 billion, but delivery and the newer restaurant brands accounted for all the increase. Core operating profit rose 4%. The firm also paid out the entire first-half profit as dividends, and kept unit growth guidance at a mid-single-digit rate.

Haidilao's table turnover in June was down slightly year over year, marking the second consecutive month of decline. The June softness came despite a calendar tailwind from the Dragon Boat Festival falling in June this year.

Haidilao operates in an intensely competitive industry characterized by low switching costs, minimal barriers to entry, and rapidly shifting consumer preferences. While the chain maintains its leadership position in the hot pot category, long-term investors must grapple with the business' inherent cyclicality and ongoing questions around capital allocation.

Haidilao's second-half 2025 revenue grew 6% year-over-year on strong delivery sales. Core operating profit declined 13%, primarily due to an unfavorable mix shift toward lower-margin delivery and new restaurant concepts. Early indicators for the first quarter of 2026 point to decent revenue growth.

Haidilao operates in an intensely competitive industry characterized by low switching costs, minimal barriers to entry, and rapidly shifting consumer preferences. While the chain maintains its leadership position in the hot pot category, long-term investors must grapple with the inherent cyclicality of the business and potential concerns regarding capital allocation.

China’s domestic tourist spending during the 2026 New Year holiday rose 12% compared with 2019, accelerating from the 9% increase recorded during the June 2025 Dragon Boat Festival—the most comparable holiday.

Haidilao operates in an intensely competitive industry characterized by low switching costs, minimal barriers to entry, and rapidly shifting consumer preferences. While the chain maintains its leadership position in the hot pot category, long-term investors must grapple with the inherent cyclicality of the business and potential concerns regarding capital allocation.

Haidilao's revenue declined 4% year over year in the first half of 2025, with operating profit down 14%. Management attributed the weak performance to subpar customer service, which negatively affected repeat visits.

Macroeconomic indicators remain weak for restaurant operators in China, though conditions are no longer worsening. In response to government efforts to curb excessive competition, food delivery platforms have scaled back their promotional activities.

Haidilao reported its second-half 2024 earnings, with operating profit up 21% year on year, despite a 6% drop in revenue. Looking ahead to 2025, management expects to increase its restaurant count by midsingle digits year over year while maintaining a stable gross margin.

Haidilao operates in an intensely competitive industry characterized by low switching costs, minimal barriers to entry, and rapidly shifting consumer preferences. While the chain maintains its leadership position in the hot pot category, long-term investors must grapple with the inherent cyclicality of the business and potential concerns regarding capital allocation.

Additional signs indicate that China's restaurant industryhas been stabilizing over recent months, even in the absence of meaningful government stimulus.

Encouraging Golden Week data from leading restaurant operators in China reinforces our above-consensus earnings estimates and positive outlook for the sector. Our top pick remains wide-moat Yum China, given its diverse store formats and robust supply chain, which provide resilience during economic downturns and enable rapid expansion in prosperous times. Shares of Yum China are trading at a 40% discount to our $76 per share fair value estimate.

While Haidilao’s interim results don’t change our outlook for the company, we feel more confident coming out of its earnings call as the firm is seeing average spending improvement for the Chinese restaurant sector. While other pieces of the puzzle remain, we see increased earnings visibility for the sector, reinforcing our favorable long-term view. Overall, we maintain Haidilao’s fair value estimate at HKD 17.10. We think shares are undervalued, trading at just 12 times our estimated 2024 earnings.

Share prices of Chinese restaurant stocks under our coverage (Yum China, Haidilao, Jiumaojiu, and Xiabuxiabu) have declined over the past three months due to ongoing macroeconomic challenges in China, raising concerns about downtrading and increasing promotions that could impact both customer traffic and margins. While further sales deterioration is possible, our 2024 forecasts for these stocks have already accounted for continued weaknesses in traffic and pricing.

Following the impressive table turnover rates achieved by Haidilao and its aggressive store-opening strategy, we are increasing our fair value estimate for the company by 25% to HKD 17.10. Our base case assumes that the operating environment for restaurants in 2024 will be slightly better than in late 2023, and Haidilao should record positive same-store-sales growth for the full year, translating to a slight improvement in operating margin. That said, even after raising our fair value estimate, we still view Haidilao’s shares as fairly valued. Our preferred picks in the Chinese restaurant space are Yum China and Jiumaojiu.

We are not fond of the structure of Haidilao’s business as it doesn’t own the trademark to its namesake brand. Instead, the firm licenses the Haidilao brand from a company privately held by founder Zhang Yong. We think this model exposes Haidilao’s shareholders to additional risks and contingencies.

Following the recent market correction, Chinese restaurant operators are trading at attractive valuations and offer prime buying opportunities for long-term investors. Apart from Haidilao, our coverage—Yum China, Jiumaojiu, and Xiabuxiabu—now sits comfortably in five-star territory. Wide-moat Yum China is our top pick in the sector, which is trading at a considerable 50% discount to our $80 fair value estimate.

No-moat Haidilao’s first-half earnings were in line with the positive profit alert issued in July. Management maintained a cautious tone on new unit openings by not providing any guidance for this year. We fine-tuned our model but kept longer-term assumptions largely unchanged. Overall, we are maintaining our HKD 13.70 fair value estimate and view Haidilao shares as overvalued.

We initiate coverage of three China restaurant operators, Haidilao International, Jiumaojiu International, and Xiabuxiabu Catering Management, all with no-moat and Standard Capital Allocation ratings. While we take a positive view of these firms’ recovery trajectories, we struggle to identify meaningful long-term competitive advantages in their business models. Our top pick in the restaurant space remains wide-moat 5-star-rated Yum China, with its long-standing brand recognition and unrivaled supply chain capabilities.