The turnover rate is one of the most critical indicators when discussing Haidilao, and it is also the cornerstone of its stock price performance.
Text | Barron's Chinese Writer Lin Yidan
Edit | Peng Ren
A positive profit forecast on July 30 sent Haidilao (6862. HK) jumped 12% the following day — the stock's second-highest one-day gain so far in 2023 — and pushed the stock closer to its nearly one-year high over the next two weeks. The forecast said that one of the reasons for the sharp increase in performance is the increase in the turnover rate.
A month later today (August 29), Haidilao announced its 2023 half-year report, and the company's turnover rate in the first half of the year reached 3.3 times/day, compared with 2.9 times/day in the same period last year. The financial report also showed that the revenue was 18.886 billion yuan, a year-on-year increase of 24.6%; The net profit was RMB 2.258 billion, close to the level of net profit for the whole year of 2019.
Let's make a less rigorous but very interesting comparison: if you compare the turnover rate of Haidilao in a certain fiscal year with the stock price performance of Haidilao in the following year, it is not difficult to find that the turnover rate can be regarded as a "leading indicator" of Haidilao's stock price to a certain extent——
In 2018, the turnover rate was 5.0; in 2019, the annual stock price increased by about 83%;
In 2019, the turnover rate was 4.8; in 2020, the annual stock price increased by about 93%;
In 2020, the turnover rate was 3.5; in 2021, the annual stock price fell by more than 70%;
In 2021, the turnover rate was 3.0, and in 2022, the stock price rose by about 26% for the whole year - although it is important to understand the fact that Haidilao rose 92% in the last two months of 2022.
Therefore, the first turnover rate data handed over by Haidilao after the epidemic will most likely become the cornerstone of its stock price performance in the future.
Efficiency is more important than expansion
As we all know, the turnover rate is one of the most critical indicators when discussing Haidilao. At the peak of Haidilao, that is, from 2017 to 2018, the turnover rate of Haidilao can reach 5 times per day.
Closely related to the turnover rate is the diminishing marginal effect that the restaurant industry agrees on - this involves the growth of the number of stores. For example, a restaurant with long queues may still be overcrowded after opening a branch; If 100 branches are opened, it will obviously divide the source of customers.
The starting point of the slowdown in the growth rate of Haidilao stores appeared in 2020 - and it was a cliff-like decline, from 69.01% to 3.93%.
Unit: HomeSource: Company Financial Report Charting: Barron's Chinese edition
As mentioned above, the starting point of the decline in Haidilao's turnover rate occurred in 2019, before the epidemic. This also means that in 2019 and 2020, Haidilao's strategy of opening new stores was actually at the wrong time.
In the 2022 annual report, Haidilao rarely used the word "reflection" to think and plan for its store expansion behavior and future operation. Compared with other Hong Kong-listed catering companies, Haidilao's statement reflects its certain inclination and emphasis on operational efficiency and growth and expansion——
In the profit forecast for the first half of 2023, Jiumaojiu (9922. HK) advertised the continued growth in the number of stores of its brands – a total of 621 stores as of June 30, 2023, up 30.7% year-on-year. A similar expression is also Xiabu Xiabu (0520. HK), the company currently has 1,094 stores, and in the first half of 2023 "opened stores rapidly, the restaurant network successfully expanded south".
On the other hand, Haidilao said that "the increase in turnover rate, the improvement of internal management and operation, and the improvement of restaurant operation efficiency" are the keys to increasing profits.
There are indications that Haidilao's combination of relying on store growth + turnover rate is likely to become a thing of the past.
In this regard, one angle that can be interpreted is that Haidilao is no longer a catering enterprise with offline expansion. Having captured a significant market share, efficiency—that is, turnover rate—may be more important than the market thinks.
The rollover rate is easier said than done
However, Haidilao has suffered a long turnover.
The fundamental reason is that the Haidilao business is too single. Restaurant operations account for an absolute proportion of the company's revenue, reaching nearly 94% at its lowest point (2022).
Unit: RMB 100 million Source: Company financial report chart: Barron's Chinese edition
This situation is also highly likely to continue. Because Haidilao's fastest-growing business in the past year is not enough to make up for the company's overly single "Achilles heel" - in 2022, Haidilao's takeaway business revenue doubled to 1.280 billion, accounting for 4.1% from 1.6% in the same period of the previous year, but it does not shake the importance of restaurant operation to Haidilao.
The difficulty of Haidilao in doing takeaway is that the matter of eating hot pot itself does not match the convenience of the takeaway consumption scene, and even pays higher economic costs and time costs - the starting price and delivery fee of Haidilao takeaway are often higher than those of ordinary merchants, and you may also need to bring your own or buy heat sources and pots from Haidilao, and you also have to clean up yourself after eating.
It is true that when breaking through the second growth curve of takeaway, Haidilao has worked hard enough. For example, it will intimately prepare everything you need to make your takeaway experience as close to dine-in as possible; It will also design a one-person package to meet the needs of such takeaway main consumer groups; It even sells crayfish, broadening the upper limit of the takeaway business from the product category.
Haidilao takeaway crayfish product source: Haidilao delivery WeChat mini program screenshot
But in the final analysis, the future story of Haidilao is likely to still be on the track of turnover rate.
At the same time, in addition to "rolling" its own turnover rate, Haidilao also has to face the reality of other competitors to "roll" it. For example, Taier, a catering brand that operates sauerkraut fish under Jiumaojiu, successfully surpassed Haidilao in its turnover rate from 2020 to 2021.
Note: Jiumaojiu separately calculated the two major catering brands of Jiumaojiu and TaierSource: Company financial report charting: Chinese edition of Barron's
And as shown in the figure below, the turnover rate in Haidilao was reversed by Tai Er, and the growth momentum of the number of stores in the former was not as strong as the latter——
Source: Company Financial Charting: Barron's Chinese edition
Therefore, when investors have high hopes for Haidilao, they need to deeply understand that it is not easy to return the turnover rate to its peak.
Does anyone else eat Haidilao?
How can I increase the turnover rate? The Chinese edition of Barron's pointed out that it is nothing more than two ways: (1) shortening the time customers eat; (2) Increase customers' willingness to wait.
Shortening the dining time of customers is unrealistic for Haidilao, after all, eating hot pot is a "sense of ritual". In this regard, Haidilao has a natural disadvantage for other catering brands such as Bitaier.
Increase customers' willingness to wait – Haidilao actually has potential.
A cursory calculation of Haidilao's number of diners (income/per customer consumption) shows that in 2022, when the impact of the epidemic has not yet completely ended, the number of diners in Haidilao reached 330 million, which has exceeded the pre-epidemic level.
Unit: 100 million person-times Source: Company financial report, "Barron's" Chinese edition calculation chart: "Barron's" Chinese edition
This shows that consumers will still go to eat Haidilao. This is also the most important basis for Haidilao's recovery in the turnover rate.
In order to increase the number of diners, Haidilao is also playing new tricks. For example, the recently searched "Haidilao Street Night Market" extends the consumption scene of Haidilao outward, and is essentially a way to increase customer flow and increase the turnover rate.
Therefore, investors who are firmly bullish on the F&B track can also continue to pay attention to how Haidilao can maintain its attractiveness to consumers to maintain or even exceed the current valuation level.
At present, the market value of Haidilao is HK$122.6 billion. The price-to-earnings (TTM) ratio is 80 times. Another Hong Kong-based restaurant stock with a market capitalization of more than $100 billion is Yum China (9987. HK), with a price-to-earnings (TTM) ratio of 30 times.
Year-to-date, Haidilao is down 1.12% and Yum China is down 3.21%, both outperforming Hong Kong's Hang Seng Index.
Copyright notice: Original article by Barronschina, may not be reproduced without permission. (The content of this article is for informational purposes only and does not constitute any form of investment and financial advice; The market is risky, and investment should be cautious. ）