Everbright Securities: Initiates "Buy" rating on XIAOCAIYUAN, improving supply chain efficiency and stabilizing quality and price

According to the Zhitong Finance APP, Everbright Securities has released a research report stating that it has initiated coverage on XIAOCAIYUAN (00999) with an "Overweight" rating. The company is expected to achieve net profits attributable to the parent company of 750 million, 922 million, and 1.132 billion yuan for the years 2025-2027, translating to EPS of 0.64, 0.78, and 0.96 yuan, respectively. The current stock price corresponds to PE ratios of 16X, 13X, and 11X. The company is a leading brand in the mass-market convenient Chinese dining sector, and its positioning aligns with the current consumer trend of pursuing value for money. The impressive performance during the National Day holiday further demonstrates the company's strong anti-cyclical capabilities. The company is accelerating its store openings in the second half of 2025, with significant long-term expansion potential, and there is still room for improvement in profit margins due to supply chain advantages. The main points from Everbright Securities are as follows: Breaking through the mass catering market, leading convenient Chinese dining XIAOCAIYUAN is a leading brand in the mass-market convenient Chinese dining sector, focusing on "New Huai Cuisine," with an average customer spend of 50-70 yuan. In 2023, its market share was 0.2% (by revenue), ranking it among the top three Chinese mass catering chain brands. The company operates brands such as XIAOCAIYUAN and CAISHOU, with 752 directly-operated XIAOCAIYUAN stores expected by the end of September 2025, focusing on community business circles. The supply chain has evolved from regional procurement to a nationwide cold chain network, with concentrated ownership among senior management and a well-established incentive system. In recent years, revenue and profit growth have shown strong resilience, with gross and net profit margins leading the industry. Labor and rental costs are low, and stores are expanding in cities across all tiers, with the proportion of takeout business revenue expected to rise to 38.5% in 2024. The golden era of convenient dining, XIAOCAIYUAN leads the way In the Chinese dining market, the convenient dining sector (with an average customer spend of under 100 yuan) reached a scale of 36,187 billion yuan in 2023, accounting for 88.7% of Chinese dining. The compound annual growth rate (CAGR) is expected to be 8.7% from 2023 to 2028, with an increase in chain penetration. The scale of community dining in China grew from 11.4 trillion yuan in 2018 to 13.7 trillion yuan in 2023, with a projected CAGR of 9.4% from 2023 to 2028. Consumers are pursuing value for money and "wok flavor," and the competitive landscape in the convenient dining market is fragmented, with a CR5 of only 0.8%. XIAOCAIYUAN leads with a market share of 0.2%, having advantages in the number of stores, coverage of provinces and cities, and balanced urban distribution, differentiating itself from competitors' regional layouts. Four major strategies leading convenient Chinese dining The XIAOCAIYUAN brand targets the 50-100 yuan customer spend market, aligning with consumer trends while strictly controlling ingredient quality. By utilizing centralized procurement, central processing, and cold chain distribution, it creates cost barriers. Each store is "small but refined," with an investment of 1.3 to 1.7 million yuan and a payback period shorter than the industry average. The product offering combines "freshly stir-fried and freshly made" with standardization, covering dining in, takeout, and community stores. The sub-brand "CAISHOU" is piloting community dining; the brand builds value through trust mechanisms and cultural symbols. The "headquarters-regional-store" structure supports growth, with plans for domestic encryption and overseas expansion. Continuous expansion of directly-operated stores, looking forward to emerging community brands In the short term, XIAOCAIYUAN is accelerating its store openings in the second half of 2025, with the company optimizing its single-store model (such as reducing area) to improve profits. The company plans to reach 800 XIAOCAIYUAN stores by the end of 2025 and 1,000 stores by the end of 2026, expanding into domestic sinking markets and overseas. In the long term, calculations suggest that the number of XIAOCAIYUAN stores could reach 2,050 The sub-brand "CaiShou" focuses on the community, with an average transaction value of 20-40 yuan, reusing the supply chain of the XIAOCAIYUAN brand, and is expected to fill the gap in the low-price market of the main brand, enhancing overall penetration