Brokers' take: DBS trims Haidilao TP on lower FY23 net profit estimate

WITH a lower net profit estimate for FY2023, DBS Group Research has also trimmed its target price of Haidilao International to HK$20.90 from its previous estimate of HK$21.80.

However, even with a lower target price over the next 12 months, it still presents a potential upside of 51.2 per cent from its last closing price of HK$13.82 on Friday (Mar 25).

The HK$20.90 target price translates to 76 times the research team's price-to-earnings estimates for FY2023.

Despite challenges from the Covid-19 pandemic remaining a concern weighing on the performance of Haidilao, DBS Group Research analysts Alison Fok, Mavis Hui and Alice Hui still maintains a "buy" rating on the Hong Kong-listed hotpot chain, in a research report on Friday.

The analysts said the company has tried to be more efficient by coming up with new product offerings, expanding its sub-brands like Shi Ba Cuan, and raising table turnover by closing underperforming stores raising table.

DBS Group Research have lowered its estimates for Haidilao's net profit in FY2023 by 4 per cent to 1.23 billion yuan (S$263 million) from 1.28 billion yuan, a previous forecast made in Feb 9 this year.

However, it raised its net profit forecast for FY2022 by 2 per cent to 958 million yuan, from its previous estimate of 937 million yuan.

"We are bullish on the pace of post-Covid revenue recovery as we have noticed signs of improvement. Second, with the closure of nonperforming stores, we expect the group will be more careful in store expansion ahead," said the analysts.

The hotpot chain had announced in November last year that it will be shutting close to 300 restaurants that have low customer traffic and unsatisfying results. It also restructured overall operations.

DBS Group Research said this helps to streamline overall assessment of store expansion and pricing to reduce redundancy in positions.

The analysts also added that Haidilao should have sufficient cash to maintain operations with a net gearing of 23 per cent. Gearing is a measurement of a company's financial leverage.

The key risks to Haidilao would include resurgence of Covid-19 in China and overseas markets, which may cause disruptions in customer traffic. Other risks include the weaker economic outlook and the current uptrend in food and wage cost.

Haidilao shares ended higher by 5.54 per cent, or HK$0.74 at HK$14.10 on Monday.

READ MORE:

• Billionaire founder of Haidilao steps down as CEO
• Hot pot chain Haidilao to close or suspend 300 stores by year-end
• Hot pot chain Haidilao slows growth as Covid-19 curbs consumer appetite
• Haidilao is Hang Seng's worst-performing stock