1、Disruption in Asias Restaurant SectorThe Impact of COVID-19 on Leading F&B Players-Opportunities and Challenges AheadResearch ReinventedSmartkarma unites Independent Research Providers,Investors,and Investor Relations in one network.At Smartkarma,We Do Things DifferentlyWelcome to another Smartkarma

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8、tic(Sector/Industry)Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistBy Devi Subhakesan|03 Aug 2020EXECUTIVE SUMMARYRestaurants globally not just in Asia are passing their darkest days aspandemic-led caution and restrictions have impacted operations andviability,e

9、ven threatening the survival of many independent restaurants.Well-funded restaurant chains are better positioned to weather this crisis;the agile and resilient operators that can adapt to the change inconsumption behavior could eventually benefit from the likely sectorconsolidation.We look at leadin

10、g listed restaurant players in Asia-YumChina Holdings,Inc(YUMC US),Haidilao(6862 HK),Jiumaojiu(9922 HK),Cafe De Coral Holdings(341 HK),Xiabuxiabu Catering Mgt Chn Hldgs(520HK),Jollibee Foods(JFC PM)and Jubilant Foodworks(JUBI IN)as well asWestern players Starbucks Corp(SBUX US)China,Mcdonalds China

11、thathave established a presence here-to evaluate their operational andinvestment outlook at a time when pandemic-led uncertainties havedisrupted regular operations.What is original?In this report,we assess the operational and investmentoutlook for leading listed Asian restaurant players(referred to

12、earlier)basedon(1)how they have responded to the challenges posed by the pandemicand(2)the resilience and adaptability of their business model to operateunder the new sector-realities,beyond the pandemic crisis.We also discusshow several near-term and long-term factors are acceleratedly disruptingth

13、e restaurant sector.These changes under the new normal poses challengesand opportunities to the sectors players.Digital and Delivery capabilitieswill help the established players with strong brands to better weather thecrisis and benefit from likely sector consolidation.Convenience and Value-for-mon

14、ey offerings will benefit strong QSR brands as macro-economicheadwinds impact consumption patterns.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&Persist3Devi SubhakesanAsia Consumer Research,Equity Analyst|InvestoryDevi Subhakesan is an Equity Analyst with an Asia Con

15、sumer Sector Focus.She has been part of Buy-side and Sell-side Institutions,and has covered Oil,Gas&Coal,Media,Textiles,and Consumer Discretionary sectors across ASEAN,India,and North Asia.Areas of Expertise Primary Asset Class:Equities Geography:Asia Pacific Countries:Generalist Sectors:Consumer Di

16、scretionary,Consumer StaplesContent Verticals Equity Bottom-Up,Equity Capital MarketsDETAILRestaurant Sector Disrupted:Pivot andPersist to stay relevantCOVID-crisis has fundamentally affected consumer lifestyles-from theway we work,study,travel or spend leisure time.This,in turn,hasstructurally impa

17、cted personal consumption demand.However,in the caseof food,the impact is not on the demand but on how it is sourced andwhere it is consumed.This has accelerated the pace of disruptions alreadyunderway in the Restaurant sector.Restaurants will need to pivot theirmodels to address the change in consu

18、mption patterns to stay relevant andviable,going forward.With little visibility on any quick respite fromsocial distancing measures as a precaution against COVID infections,the restaurant sector will have to actively adapt to the new normalwhere consumers prefer convenience and off-premise dining.In

19、vestment Rationale-SectorPrefer Chain restaurants vs Independents,and QSR vs CDR.Inthe backdrop of the changes facing the restaurant sector,itsimpact,and the sectors response discussed below,we believeQuick Service Restaurant(QSR)chains are better positioned torespond to sector challenges by scaling

20、 up digital and delivery-ledsales given they mostly have an existing digital infrastructure,owndelivery platform,and brand recognition.Also,given themacroeconomic headwinds,QSRs are preferred given they offercustomers attractive value-for-money and affordability.Casual Dining Restaurants(CDR)are at

21、higher risk ofoperational losses given weaker dine-in demand under the newnormal and higher costs incurred for delivery(often using third partydigital/delivery platforms).Mostly,their premium locations and alarge team of service staff cost more in terms of rental and labor.Weaker dine-in demand and

22、lower dine-in capacity could hurt salesin the medium term;difficult to recoup these lost sales and marginsfrom private family-diners,delivery/takeaway sales alone.Also,highmargin drinks/alcohol sales tend to get severely hit when dine-insales are limited.Asia Restaurant Sector:Disrupted.Opportunitie

23、s/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan4Investment Summary-Asia RestaurantStocksChina/HKAbsolute Return,High Conviction:1.Go for?Yum China(YUMC US).2.Exit?Haidilao(6862 HK)Relative Return,Sector-specific:3.?Cafe De Coral(341 HK)betterpositioned;4.?Jiumaojiu(9922 HK)5.?XiabuxiabuCater

24、ing(520 HK)are on weak groundRest of Asia-Philippines,India6.?Jollibee Foods(JFC PM):Wait for better entry points,Need not rushin7.?Jubilant Foodworks(JUBI IN):Stay Invested,Steady long term Indiafoodservice playSource:Capital IQ;share price as of July 28 closeTo sum up the investment recommendation

25、s on the seven Asialisted restaurant stocks we cover in detail in this report-Werecommend-Yum China Holdings,Inc(YUMC US),Cafe DeCoral Holdings(341 HK)and Jubilant Foodworks(JUBI IN);allthree are leading QSR operators in their respective home markets.We see downside risks to casual/concept dining pl

26、ayers-Haidilao(6862 HK),Jiumaojiu(9922 HK),and Xiabuxiabu Catering Mgt ChnHldgs(520 HK).As for leading Philippines based QSR player JollibeeFoods(JFC PM)we are concerned about the pace of revenue recoveryand would wait for later entry points.Asia Restaurant Sector:Disrupted.Opportunities/Challenges

27、Ahead-Time to Pivot&PersistDevi Subhakesan5In the detailed report below,we discuss1.Rationale:Investment Recommendation-Stocks2.Sector analysis and update1.What has changed in the Restaurant sector environment?2.The Response:How have Restaurants responded to the change?3Ds3.The Impact:How have the a

28、bove changes impacted restaurants?4.Looking forward-Beyond the crisis:What to expect for the sector?3Rsand 3Cs3.China/HK:Quick Service Restaurants1.Market snapshot and analysis2.Comparing the biggest 3 QSRs in China:Yum China,Mcdonalds,andStarbucks4.Detailed Stock Coverage-Asia Restaurant Sector(7 s

29、tocks)-Company update,COVID Response&Impact,Investment positives,Key risks&concerns,Financials,and ConclusionRationale:InvestmentRecommendation-Stocks1.Go for Yum China(YUMC US).ExitHaidilao(6862 HK)Testing times-Yum has got its act right;Hotpotis not hot in favor,for nowInvestment Reco.:Large-cap R

30、estaurant stocks-HighConviction,Absolute ReturnYum China(YUMC US):Upside potential.Near term and longterm upside from current levels given-(1)its relative operationaland financial outperformance versus peers during 1H2020 whenAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pi

31、vot&PersistDevi Subhakesan6pandemic crisis rocked the industry;a testament to its QSR modelpivoting well to new normal(2)expected stock performance triggersdiscussed below.Haidilao(6862 HK):Downside risk.Expect a correction in steepvaluation multiples and a downgrade to 2021 street estimates.Thestoc

32、k has held steady at HKD35 levels since Sep 2019 despite theoperating environment deteriorating sharply since Jan this year andthe company reporting steep losses for 1H2020.With little visibilityon return back to earlier in the near term,expect Haidilaos nearterm and forward earnings growth to get h

33、it as communal conceptdining is less favored under new normal.Yum China(YUMC US)s near term key stock performance triggersinclude:-(1)the potential secondary listing in Hong Kong that can lead to avaluation rerating and narrowing of the gap with HK listed peers.Currently,it trades more in line with

34、its US-listed peers(see Valuation table above).(2)the completion of its recent acquisition of controlling interest inHuang Ji Huang group-that has 640 hotpot restaurants(compared to 760+for Haidilao)across China.(3)likely earnings upgrade as investors gain better visibility on companyperformance.Ope

35、rationally,Yum China is on a much stronger wicket than its local peersunder the current new normal-a fact it established well with its swift andeffective response during the lockdown and beyond.Its digital-orderplatform,own delivery channels,customer membership program and value-for-money meals give

36、 it an edge over the competition under the currentenvironment.During 2Q2020 delivery accounted for 29%of its sales and its265 mn+membership could be the largest of its kind.Upside potential.Haidilao(6862 HK)stock,on the contrary,could face downwardpressures in the near term given:-(1)potential earni

37、ngs downgrades following the weak 1H2020 results-current projected(street estimates)earnings look way too optimistic.Management has already guided Net loss of HKD900 mn to 1 bn for 1H2020;to get to street projected earnings for 2020,it will need to deliver the sameprofits as full-year 2019 in 2H2020

38、!Under the new normal,hotpot stylecommunal dining isnt preferred as earlier-expect revenue growth tomoderate.With delivery sales accounting for 1.7%of the total in 2019,itsbusiness model may not easily pivot to delivery-led sales growth.(2)expensive valuation multiples price in an aggressive revenue

39、 andprofit growth trajectory,going forward.We think it may go slower onexpansion given its dine-in experience-based concept dining has limitedrelevance under new normal where customers increasingly prefer foodAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi S

40、ubhakesan7delivery.Macroeconomic headwinds do not augur well for concept diningrestaurants with high average spend per customer.Risk to forwardearnings multiples and projections.Projected(street estimates)steep recovery in Haidilaos Revenue,Profitgrowth in 2021 is way too optimistic.Expect downgrade

41、s to follow-alikely trigger for stock price correctionSource:CapitalIQ,InvestoryOperationally,hotpot restaurants arent well placed to attract a strongcustomer traffic in the near to medium term given its shared foodconsumption model is increasingly being perceived by customers as unsafeand prone to

42、virus spread.Additionally,its service model does not lenditself easily to home delivery that is helping most players to drive revenuecurrently.Its Dine-in focussed model may not attract as many visitors givenits USP of delightful service are curtailed by practices like social distancing(See detailed

43、 discussion later).It has already closed down its popularcondiments and sauces station-service person serves it upon request.Itssingle format concept dining model is relatively riskier as has been provedduring this crisis when all of its restaurants had to be shut down.Downsidepotential.Asia Restaur

44、ant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan82.Cafe De Coral(341 HK)offer a betterupside.Jiumaojiu(9922 HK)andXiabuxiabu Catering Mgt(520 HK)on weakgroundBeaten down HK-based QSR play preferred overConcept/Casual dining playersInvestment Reco.:Midcap Resta

45、urant stocks-Relative Return,Sector-specificCafe De Coral(341 HK)has the potential to surprise on the upsidegiven(1)relatively inexpensive valuations and(2)better visibility onearnings recovery compared to peers(3)strong balance sheet.The stock hasbeen severely beaten down over the twin negatives of

46、 worsening social/economic conditions in HK and pandemic-led restrictions.Pandemic-crisisor disrupted social conditions do not affect the demand for food-it onlyimpacts what and how it is sourced and where it is consumed.We believethe worst is probably past for its core QSR business as the company h

47、asstarted to promote takeaway meals,offer delivery options,and invest indigital platforms to adapt to the changing operating environment.Moreover,its attempt to renegotiate rentals and manage operating costs too couldhelp.Its budget positioning appeal to value-conscious customers and QSRmodel adapt

48、easily to delivery/takeaway demand.Jiumaojiu(9922 HK)s downside risk arises from(1)steep valuations and(2)likely downgrades to street estimates that assume strong earningsgrowth from a V-shaped recovery in 2021 and steady store expansions.Wethink this is unlikely to materialize given its concept/cas

49、ual diningrestaurant based operations may not easily pivot to address customerdemand for delivery/takeaway modes.Its flagship fish soup restaurant chain-Tai Er-didnt offer delivery until 2019.Its Jiumaojiu(9922 HK)restaurantsales were down 61%in 1H2020 despite it offering delivery.However,thecompany

50、 has a strong balance sheet to wait out for dine-in demand recoverythanks to IPO funds and recent capital injection(and equity dilution)by itspromoters(funded by a sale of privately held shares,post lockdown).Xiabuxiabu Catering Mgt(520 HK)s downside risk on earningscontinues as its hotpot style cas

51、ual dining format may not easily adapt torising consumer preference for delivery/takeaway.We believe hotpot stylecommunal dining could remain out of favor with customers for now givensocial distancing norms and heightened hygiene consciousness.TheAsia Restaurant Sector:Disrupted.Opportunities/Challe

52、nges Ahead-Time to Pivot&PersistDevi Subhakesan9company was not on strong operational or financial conditions even prior tothe pandemic as evident from declining same-store-growth(SSG),fall inseat turnover rate,deteriorating margins,and lower profitability in 2019 vs2018.Without a core long term val

53、ue/growth proposition,and ongoingtough operating conditions,AVOID the stock despite seemingly inexpensiverelative valuations.3.Jollibee Foods(JFC PM):Wait for laterentry points,Need not rush inJollibee Foods(JFC PM)near term stock upside could be limited givenlikely protracted recovery from the COVI

54、D crisis versus regional peers.Itderives nearly 70%of its revenues from the Philippines,where lockdownshave been in place since mid-March.Even as pandemic concerns begin toease,the economic impact on developing countries like the Philippinescould badly affect consumers ability and willingness to spe

55、nd even atQSRs.The companys low margin operations leave it little room to lowerprices to boost sales.Key upside risk is the possible turnaround in recentlyacquired overseas ventures-Coffee Bean&Tea Leaf and Smashburger.Itsleveraged Balance sheet(following the global acquisitions)also increases theri

56、sk profile.Wait for better visibility on revenue and margin recovery beforeinvesting in this high-quality food service player with global growthaspirations.4.Jubilant Foodworks(JUBI IN):StayInvested,Steady Long term Indiafoodservice playJubilant Foodworks(JUBI IN)s steady return upside potential is

57、backedby its ability to recover swiftly from the COVID crisis thanks to its existingdelivery-focused operations,digital capabilities,and wide market coverage.It also stands to benefit from the impending industry consolidation asextended months of lockdown and restrictions force unorganized players t

58、oexit the market given their limited financial resources and difficulty in hiringback low-cost migrant laborers.This would improve market share fororganized players like Jubilant and also add to their relative bargainingpower with landlords in terms of rental renegotiations.Its relativelyexpensive v

59、aluations suggest that stock is likely pricing in most of theAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan10expected earnings upside.Jubilant,however,has historically enjoyed highvaluation multiples given its superior growth trajectory,high marg

60、inoperations,and status as the only listed restaurant stock in India.Sector analysis and update:Expect a period ofpain before consolidation gainThe Change:What has changed in the Restaurant sectorenvironment?Fall in demand for dine-in services-COVID-led customer cautionleads to fewer visits to publi

61、c spaces including restaurants,feweroccasions to dine-in as work-from-home limits reasons to traveloutside(the lost urban commuter),restrictions on socializing limitsget-togethers over food/drinks,increasing preference to eat-at-home-limits dine-in demandFall in dine-in capacity-social distancing me

62、asures limit the numberof seats per table,increased spacing between tables lead to fewertables,restrictions on hours of operation,restrictions on operating inclosed spaces(airconditioned)in select markets-all affect restaurantsdine-in capacityHygiene consciousness impact dining preferences-Authoriti

63、esattempts to change dining etiquette-discouraging communal eatingtowards individually portioned plates,avoiding double-dipping,insisting on the use of serving chopsticks(gongshao),changes to buffet/banquets restricting self-serving,concerns on shared hotpot stylemeals-impact social dining habitsLit

64、tle demand for catering services-restrictions on the number ofpersons for social gatherings,cancellation of public events andfunctions,remote working options for office goers,extended schoolclosures-impact demand for catering servicesDigital and delivery platforms get dominant-Customer preferencefor

65、 off-premise dining partly led by convenience and access to low-costdelivery options offered by digital platforms.Third-party platformswith their dominating market presence enjoy better bargaining powerand are able to charge high commissions from restaurantsAsia Restaurant Sector:Disrupted.Opportuni

66、ties/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan11Source:NielsenThe Response:How have Restaurantsresponded to the change?3DsRestaurants in Asia responded to the challenges posed by the pandemiccrisis managed so by adopting the below-discussed strategies to varyingextents given their readin

67、ess levels.Those that couldnt had to stay shutduring the lockdown and now operate at sub-optimal levels.DigitalDeliveryDiscountsQuick ServiceRestaurantsCasual DiningRestaurantsConcept DiningRestaurantsDigitalYes-Own/3rd partyYes-3rd partyRarelyDeliveryYes-Own/3rd partyYes-3rd partyLimited MenuDiscou

68、ntsValue mealsYesYesOperations duringlockdownMostly open-onlydeliveryFew were openMostly closedCurrent operationsFully operationalRestricted operationsRestricted operationsAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan12From shifting to online or

69、ders/payments and offering contactless deliveriesand discounted prices,restaurants have pivoted their models to service theircustomer needs and stay afloat.Chain restaurants and branded QSRs thathad already invested in their own digital platforms and delivery channels(Yum China Holdings,Inc(YUMC US)

70、,Jubilant Foodworks(JUBI IN)werebest positioned to respond quickly to the shift in the business environment;could mostly operate even during the lockdown.Casual dining restaurants(CDR)had to rely on third-party platforms(Meituan Dianping(3690 HK),Grab Food,Food Panda,Swiggy,Zomato)to access their cu

71、stomers.With asevere shortage of delivery personnel,this didnt work well during thelockdown period and also cost heavily leaving little net margins on the table.Many restaurants chose to stay shut instead.Lastly,concept dining players-hotpots(Haidilao(6862 HK),sushi places mostly stayed shut during

72、thelockdown as they couldnt effectively adapt their menu and processes fordelivery.The Impact:How have the above changes impactedrestaurants?Upended existing business models for restaurantsPremium/High traffic high rental location is no more a key asset.Location-centric and dine-in focussed restaura

73、nt models are not viableunder the current operating environment.With city centers and publictransport systems operating at minimal capacity,customer traffic is notconcentrated at few locations anymore.Demand has shifted to suburbs,residential areas as more time is being spent at home and consumersin

74、creasingly prefer to eat at home.Delightful Dine-in experience is not a differentiator.Maskedservice staff maintaining minimum distance from customers offer littleprospect for delightful service interactions.Restaurants that focussedon the quality of dine-in experience and/or ambiance of their premi

75、seshave lost their winning edge.Delivery-led sales alone cannot make up for lost margins fromdine-in sales.Delivery sales involve higher costs,often have a limitedmenu and almost no orders for high margin drinks/alcohol compared toDine-in sales.Delivery-led foodservice model works well for valuemeal

76、s but not for fine dining or concept dining places.Looking forward-Beyond the crisis:What to expect for thesector?3Rs and 3CsReduced margins and Rise in Delivery.Until existing cost-structures arereset lower-by renegotiating rentals and/or cutting down staff,restaurantswill earn lower margins as del

77、ivery-led sales growth outpace dine-ins.The restaurant sector has a relatively high operating leverage with fixedAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan13costs(rentals,labor)accounting for nearly 50%of normal sales.With overallsales volume

78、 under pressure and macro headwinds limiting pricing power,sector margins are expected to decline.Restructuring and renegotiations.With lower dine-in demand,restaurants may look at cutting excess service staff,re-negotiate rentalslower and or cut down on dining capacity by letting go of excess space

79、,where possible.Yum China stated that they have already begun rentalrenegotiations and now 80%of leases have a variable component and 40%ofthe rental costs are variable.Relocation and Resizing.As more offices allow WFH options for longerperiods,Cafes and restaurants around city centers may look at r

80、elocating tosuburbs closer to where demand is.Mcdonalds Corp(MCD US)has statedplans to scale down the size of outlets in urban centers given lower office-commuter traffic.KFCs relatively weak 2Q recovery vs Pizza Hut wasattributed to the fact that KFC has a higher share of outlets near transporthubs

81、 andClosures and Consolidation.Restaurants that couldnt pivot to a delivery-led model when dining restrictions were put in place have been saddled withheavy fixed costs(often 50%+of regular sales)and liabilities,forcing themto shut shop or sell out to investors/restaurant groups.Longer the period of

82、pandemic-restrictions,the tougher it will be for many restaurants(mostlyindependents)to survive.Expect sector consolidation to eventually favor chainrestaurants/organized players as rentals decline and market share improves.Cloud kitchens and Competition.Digital platform and Delivery basedfoodservic

83、e models can be at their competitive best when run as Dark/Cloudkitchens.Expect more forays in this space.This could exacerbate thecompetition in the sector.As delivery-led sales grow,expect evenmainstream players to optimize margins from delivery-sales by serving fromdark/cloud kitchens.Chain resta

84、urants(organized sector)to gain market share.Given theirscale and size,expect organized sector players to have better control overcosts and bargaining power on rental negotiations.Financial strength andbrand power to viably invest in their own digital payments and deliveryplatforms could improve mar

85、gins.As weakly placed independent restaurantsshut shop,expect organized to gain market share.Expect organized players with agile&resilient business models topivot and persist to adapt to COVID-led changes,and eventuallybenefit from sector restructuring and consolidation.However,macroeconomic headwin

86、ds could limit pricing power and volumegrowth potential,thus keeping margins low in the near-to-mediumterm.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan14China/HK markets-A snapshotExpect a significant shift in Food consumptionpatternSource:Niel

87、senChina/HK:Quick Service Restaurants-Quick toshift gears towards DeliverySector Snapshot.Top 3 Restaurant chains in China are threeleading QSR players from the West-Yum China(YUMC US),Mcdonalds Corp(MCD US)and Starbucks Corp(SBUX US)Chinas restaurant sector is dominated by independent full-servicep

88、layers while organized chain restaurants account for less than 10%ofthe USD85 bn+industry.See the charts below.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan15Yum China is way bigger than peers;Independents dominate the broader sectorSource:S&P C

89、apital Markets,EuromonitorComparing the biggest 3 QSRs in China:Yum China,Mcdonalds,andStarbucksYum China(YUMCUS)Mcdonalds Corp(MCDUS)Starbucks Corp(SBUXUS)BusinessMultibrand-QSR,CDRSingle brand Burger QSRSingle brand CafeNo.of stores9,2952,9004,400Annual store additionplan-400500-600No.o

90、f cities covered1400+NA180+COVID Impact and Response-Management commentary post 2Q2020results:Yum China:Off-premise dining remains the key pillar of growth.Deliverysales accounted for 29%of sales in the quarter(2Q2020),up 36%year-on-yeargrowth.We see the new normal of reduced travel,social activitie

91、s with boutsof disruption as secondary regional outbreaks occur and are contained.Thelingering effect of COVID will impact consumer behavior.Mcdonalds:In China,after early signs suggesting a solid recovery,our pace ofimprovement has slowed as customers remain wary of social activities,and wenow expe

92、ct this more subdued pattern to continue into 2021.Starbucks:Mobile order sales mix reached 23%of sales in Q3,with 12%coming from delivery and 11%from Mobile Order&Pay,well above the mid-teens levels we saw pre-COVID.Expect China sales to be roughly flat by end ofQ4.Asia Restaurant Sector:Disrupted.

93、Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan16Quick Comments.Starbucks China We are cautious about its near term outlook(and do notshare managements relative optimism on quick recovery)given its originalvalue proposition in Asia-the third place,community,connection-is nowalmos

94、t irrelevant under the delivery-based model.In China,Starbucks hadcreated an aspirational positioning for its dine-in and had managed todifferentiate itself from other players to justify the relatively high pricedcoffee in a tea favoring country.Hence,it needs to be seen how StarbucksChina will adap

95、t itself to offer value to its customers and drive revenuerecovery.On the food side,its GOOD-GOOD campaign offering plant-basedprotein has been a differentiator.Mcdonalds China.Highly Cautious management commentary on theoperating environment raises concerns on margin recovery for the sector-highlig

96、hting the possible near term pain before any consolidation gains canset in.What youre seeing in China is youre seeing many of the kind of non-Western restaurants go to very aggressive value programs right now,trying tostimulate some demand in the market.And we do think that the market isgoing to be

97、more promotional,certainly through the balance of this year,again,as competitors are all trying to get some traffic stimulated there andencourage people to come out of the house.Reportedly,CITIC is on the lookout to offload a 22%stake in McdonaldsChina.Once the pandemic is under control,I believe th

98、e world as a whole willneed to adapt to a new business paradigm.The coronavirus outbreakwill force a re-shuffle of the way we conduct and operate,as businessesaround the globe adapt to the new market landscape.-Lo HoiKwong,Sunny;Chairman,Cafe De CoralDetailed Stock Coverage of AsiaRestaurant Sector1

99、.Yum China Holdings,Inc(YUMC US):Crispy,Convenient and Goodvalue2.Haidilao(6862 HK):Hotpot aint as much fun now;wait for COVID tocool off3.Cafe De Coral(341 HK):Revenue Recovery could be around thecorner4.Jiumaojiu(9922 HK):Tough operating times for this casual diningplayerAsia Restaurant Sector:Dis

100、rupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan175.Xiabuxiabu Catering Mgt Chn(520 HK):No special sauce to fire upthe stock6.Jollibee Foods(JFC PM):QSR-King with global aspirations,near termrisks7.Jubilant Foodworks(JUBI IN):Delivery-centric QSR model comes inhandyAsia Res

101、taurants-Digital&Delivery are key DifferentiatorsAs the pandemic-led restrictions disrupt normal operations of the restaurantsector,and consumer preferences shift towards delivery/takeaway,foodservice players that can effectively respond to this change will be thefastest to recover from the steep fa

102、ll in revenues during 1H2020.Macro-economic headwinds too will impact the pace of sector recovery.Expectvalue-for-money players to fare better than concept/fine dining.We believeQSRs with digital/delivery capabilities are best positioned to recover fasterfrom the pandemic crisis and cater to value-c

103、onscious buyers in a weakeconomic scenario.Sector consolidation will favor the organized sector.1.Yum China Holdings,Inc(YUMC US):Crispy,Convenient and Good valueThe largest chain restaurant player in China that runs the leadingQSR(Quick Service Restaurant)brand KFC and leading CDR(CasualDining Rest

104、aurant)brand Pizza Hut.It also operates other smallerbrands-Little Sheep(CDR),East Dawning,Taco Bell(QSR)-inrestaurant space,and COFFii%Joy in Cafe space.Value for moneypositioning and localized menu have been key success factors.It hassupplemented its steady organic growth with acquisitions-recenta

105、cquisition of controlling interest in Huang Ji Huang group thatoperates 640 hotpot restaurants in China is expected to close thisyear.Its own Digital and Delivery platforms help capture risingdemand from off-premise diners-a strategic advantage duringCOVID-period when customers had no dine-in option

106、.Rapidexpansion in its store footprint continues with 1000 stores added in2019 and 800-850 targeted in 2020.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan18Yum Chinas USP:Highly localized menu atValue For Money pricesSource:CompanyCOVID Impact an

107、d Response:65%of its outlets remained open evenduring pandemic months Feb-March in China.99%outlets back to operatingas usual since April though sales are down nearly 20%YoY given slowercustomer traffic as the public continues to practice social distancing andminimize going out.Delivery sales accoun

108、ted for 29%of sales in 2Q2020.Investment Positives:Resilient Business modelwith growth prospectsResilient business,well-positioned under current circumstances.Effectively pivoted operations to adapt to COVID challenges with 65%of itsstores operational at the peak of the COVID crisis and 99%open by A

109、pril.Yum Chinas business model has proven its ability to survive testing times.Yum Chinas multi-format and highly adaptable model with a value-for-money positioning is well placed in the current scenario given themacroeconomic headwinds and changing consumer preferences.Asia Restaurant Sector:Disrup

110、ted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan19Yum Chinas extensive store network andownership of stores is a key strengthSource:Company,InvestoryDigital and Delivery Capabilities-a differentiator and strength nowand in new normal.Existing integrated digital-delivery capabi

111、lities.It canaccept digital orders through its own Super App or through third partyaggregators platform.From 2019 onwards uses its own dedicated riders todeliver all orders including those placed through aggregator platforms.Withover 265 mn members its membership program could be among the largestof

112、 its kind enabling the company to digitally engage with and market tomembers.Expanding beyond Western dining concepts to Chinese casual dining.It is targeting to have a slice of the much bigger Chinese dining segment ofthe market by expanding its presence and knowledge base.The recentacquisition of

113、Huang Ji Huang,a leading hotpot brand with 640 restaurantsin China and internationally is a step toward strengthening the existingportfolio of Chinese casual Dining Brands-Little Sheep,East Dawning.Key risks and ConcernsPolitics.Recent US-China relationship at the political level has taken anegative

114、 turn of late.If it spills over to public/business relations andretaliatory actions,Yum Chinas US-based listing and ownership will be aconcern.Potential secondary listing in HK could mitigate the political risk toa large extent.Economics.Macro-economic headwinds could impact consumer buyingbehavior

115、and limit spending power.Although we expect Yum Chinas valueofferings to benefit from this trend,it could limit pricing power and slowdown margin recovery in the near term.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan20Financials-Robust Margins,

116、steady growthtrajectorySource:CapitalIQConclusionExpect Yum China(YUMC US)s to deliver superior stock returnsbacked by(1)the potential secondary listing in Hong Kong that can leadto a valuation rerating and narrow the gap with HK listed peers.Currently,ittrades more in line with its US-listed peers.

117、(2)the completion of itsrecent acquisition of controlling interest in Huang Ji Huang group-thathas 640 hotpot restaurants(compared to 760+for Haidilao)(3)likelyearnings upgrade as investors gain better visibility on companyperformance.2.Haidilao(6862 HK):Hotpot aint as much funnow;wait for COVID to

118、cool offLeading hotpot restaurant chain that went beyond the good foodand right ambiance formula and focussed on offering customers adelightful experience at every point of interaction beginning withwalk-in.More importantly,competitors couldnt copy its uniqueoperating model that is backed by its hig

119、hly empowered andmotivated staff.However,its highly experiential dine-in focussedmodel couldnt be adapted well to the pandemic-led restrictions.Unsurprisingly,the outlets were shut for nearly two months and isnow attempting to adapt to the new normal by offering deliveryservice and online order opti

120、ons through its own app and third-partyplatforms.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan21Haidilaos USP is its inimitable and delightful in-store experienceAdapting to COVID-times restrictions takes awaythe fun element,thoughSource:Company

121、,CNACOVID Impact and Response.Haidilao had shut down 100%of its outletsby end January till mid-March given its dine-in focussed hotpot conceptmodel couldnt pivot quickly enough to a delivery/takeaway model duringthe lockdown.Reportedly,it has reopened most of its outlets and isestimating 1H2020 reve

122、nues at nearly 40%below 2H2019 levels and a Netloss between HKD 900 mn-1 bn.Haidilao has stated that it has activelypromoted its convenient delivery service and a variety of takeaway meal sets andexpanded multiple online sales channels such as Haidilao APP and third-partye-commerce platforms.With de

123、livery accounting for only 1.7%of its 2019sales,we doubt if it can make up for lost dine-in sales with delivery.Investment Positives:Uniquely positionedexperiential concept dining restaurantCompetitive advantage from offering unique and delightful diningexperience.Haidilao(6862 HK)has carved a niche

124、 for itself amongst hotpotrestaurants by focusing on“guest satisfaction”and“employees efforts”.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan22The range of efforts it has put into offering customers a delightfulexperience is way beyond what a typ

125、ical chain restaurant can even attempt.It has successfully managed to do so with its unique employee compensationand empowerment model.These have created a unique value propositionthat customers appreciate and competitors cannot copy.As pandemic-fearssubside and communal dining out is back in favor,

126、expect Haidilaosrevenue growth to bounce back.Key risks and ConcernsLimited value for customers opting for delivery.Hotpot meals are mostlya choice of hot soups(simmering in the pots on your table)and an array offresh food including raw meat/fish that diners dip/cook in the soup and eat-See below.Ha

127、idilaos hotpot-fresh food and boiling soupSource:CompanyHaidilao had embellished this experience with a wide selection ofcondiments and sauces that customers could serve themselves limitlessly asalso the peripheral welcome and waiting services to delight customers.Itoffers limited value to customers

128、 who opt for delivery.Single format concept dining restaurant-not a resilient proposition.The pandemic crisis exposed Haidilaos Achilles heel-single format dine-infocussed business model.It had to shut down all stores during the lockdowngiven its model couldnt quickly adapt and respond to delivery d

129、emands.Itspurely hotpot based dining worked well so far but carries the risk of beingout of flavor for a longer period if social distancing norms continue to bestrict for a long while.Restrictions on dining capacity,discouraging communal dining willimpact the recovery of dine-in sales.Authorities ha

130、ve imposed varyingrestrictions on dine-in facilities ranging from not more than 4 persons pertable to increased space between tables.This has reduced the restaurantsoverall dining capacity.Secondly,authorities have been cautioning dinersAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead

131、-Time to Pivot&PersistDevi Subhakesan23against communal shared dining and encouraging the use of serving spoons.Hotpot dining is a shared experience and will need to be restricted toimmediate family to adhere to these norms.Financials-Expect earnings downgrades asexpansion,growth could slow downSour

132、ce:Capital IQConclusionHaidilao(6862 HK)stock is at risk of a downward correction given(1)potential earnings downgrades following the weak 1H2020 results-current projected(street estimates)earnings look way too optimistic.Management has already guided Net loss of HKD900 mn to 1 bn for 1H2020.Under t

133、he new normal,hotpot style communal dining isnt preferred asearlier-expect revenue growth to moderate.With delivery sales accountingfor 1.7%of the total in 2019,its business model may not easily pivot todelivery-led sales growth.(2)expensive valuation multiples price in anaggressive revenue and prof

134、it growth trajectory,going forward.We think itmay go slower on expansion given its dine-in experience-based conceptdining has limited relevance under new normal where customersincreasingly prefer food delivery.Macroeconomic headwinds do not augurwell for concept dining restaurants with high average

135、spend per customer.Risk to forward earnings multiples and projections.3.Cafe De Coral(341 HK):Revenue Recoverycould be around the cornerLeading QSR player in HongKong with flagship brand Cafe de Coraland later addition Super Congee&Noodles.Also has a presence inCasual dining(multiple brands)as well

136、as institutional catering(offices,schools)in HK.Now has expanded presence to MainlandChina in the QSR space.Central food processing facility supportsretail operations.With more than 84%of revenues accounted for byAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDe

137、vi Subhakesan24HK operations,it has not been the best of times since social unrestupset HK city life.Now,with further disruptions from the resurgenceof COVID-19,its ability to adapt and reach out to customers wouldkey to Cafe De Corals earnings revival.Demand for value for moneyQSRs is relatively mo

138、re resilient vs others during times of economicuncertainty.HK-based QSR operations dominate Cafe DeCorals overall businessSource:CompanyCOVID Impact and Response:The companys QSR sales were impacted by COVID-led restriction but theeffect was harsher on its casual dining business as dine-in demandeva

139、porated.Institutional catering was also impacted as decreased traffic inhospital canteens and long months of school closures affected the lunchcatering business.Mainland China business was also affected during theCOVID-19 outbreak but recovered afterward.It is becoming apparent that social distancin

140、g measures will affectconsumption behaviour and patterns which will in turn modify ourrevenue base.Moving swiftly to address fast-changing consumerbehaviour,the Group has been taking proactive efforts to capitalise onnew trends including online and mobile ordering,and placed increasedemphasis on tak

141、eaway and delivery options in line with marketdemand.-Cafe De Coral Annual Report 2020Investment positives:Dominant QSR brand in Hong Kong,strong brand position,and longoperational history“Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan25Value-for

142、-money positioning attractive given macroeconomicheadwinds.Cafe de Corals QSR brand known for Good food ataffordable prices.Expansion into Mainland China is on a growth path.Attempts to rein in cost and re-negotiate rentals given HK scenariocould help marginsEfforts to adapt to changing consumer beh

143、avior by investing intechnology and focus on takeaway/delivery options could help revivedemandStrong balance sheet and cash positionKey risks/concerns:Extended period of tough local restrictions on operations and deliverycould delay recoveryCasual Dining Restaurants could see a prolonged period of w

144、eak salesand near term revenue recovery depends on how it addresses thedelivery/takeaway demand.Institutional catering business could continue to be weak in the nearterm given continuing school closures,poor hospital canteen traffic,and WFH policies.Financials:Expect revenue recovery to drivestock u

145、psideSource:Capital IQConclusionCafe De Coral(341 HK)has the potential to surprise on the upsidegiven(1)relatively inexpensive valuations and(2)better visibility onearnings recovery compared to peers(3)strong balance sheet.The stock hasbeen severely beaten down over the twin negatives of worsening s

146、ocial/economic conditions in HK and pandemic-led restrictions.Pandemic-crisisor disrupted social conditions do not affect the demand for food-it onlyimpacts what and how it is sourced and where it is consumed.We believeAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&Per

147、sistDevi Subhakesan26the worst is probably past for its core QSR business as the company hasstarted to promote takeaway meals,offer delivery options,and invest indigital platforms to adapt to the changing operating environment.Moreover,its attempt to renegotiate rentals and manage operating costs to

148、o couldhelp.Its budget positioning appeal to value-conscious customers and QSRmodel adapt easily to delivery/takeaway demand.4.Jiumaojiu(9922 HK):Tough operating timesfor this casual dining playerSouthern China-based specialty cuisine restaurant operator in theCasual Dining segment operating mainly

149、two branded chains-theeponymous JiuMaoJiu and its recent but more successful spicy fishsoup chain Tai Er.It has also forayed into the QSR segment withDouble Eggs brand of outlets.Fuelled by funds raised in the IPO lastyear,it has embarked on an aggressive expansion for its Tai Er brandof restaurants

150、 adding _ stores in 2019 to take its total store count to_ by end 2019.COVID-related restrictions have surely been a toughtime given restrictions on dine-in earlier and then,restricted seatingcapacity later.The company raised HK$829.5 Mn in a secondaryoffering last month probably to shore up its dep

151、leting cash balancegiven the hit on operating profits during 1H2020.Jiumaojius growth mantra:Popular Spicy fish&pickles restaurant chain-Tai ErSource:Company,InvestoryCOVID Impact and Response.Jiumaojiu(9922 HK)too closed down all itsrestaurants at the end of January when the lockdown was announced

152、inChina.It gradually resumed operations by mid-March and by early May all ofits outlets are open for business.Reportedly,Jiu Mao Jiu restaurant saleswere down 61%YoY while Tai Er sales growth of 25%YoY partially made upfor it.The company is expecting a net loss for 1H2020 more than RMB120million as

153、compared to a profit of RMB102.0 million for the correspondingAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan27period in 2019.We note that the company has been aggressively adding TaiEr restaurants as part of its expansion plans.See above.With Jiu

154、 Mao Jiuaccounting for most of its delivery sales(10%of the total in 2019),will needto see how the company effectively pivots to address the rise in deliverydemand even as dine-in declines.Investment PositivesPromoter injecting capital-a show of confidence and boosts Balancesheet in these tough time

155、s.On July 16,2020,following the end of the lock-up period,the promoter agreed to sell 70 mn shares held by him andsubscribe to an equivalent amount of shares issued by the company at thesame price.Thus effectively injecting HK$829.5 Mn into the companywithout meaningfully diluting his equity share i

156、n the companys expandedcapital base(42.28%stake vs 44.42%earlier).It gives the market/investorsconfidence in the companys prospects.Key risks/concerns:All eggs in one basket-(almost)all growth(plans)based on Tai Er,thespecialty spicy fish soup restaurant chain.Jiumaojius expansion(see chartabove)is

157、mainly focussed on Tai Er,its spicy fish soup brand that has higheraverage customer spend as well as customers serviced per day than Jiu MaoJiu.However,Tai Er has witnessed fluctuating operating margins over theyears given cost pressures-sea bass being the key raw material in thisspecialty cuisine r

158、estaurant.Riding on one brand and single concept,whichlacks a strong positioning either,is a risky growth strategy and could bedifficult to follow through in current conditions where dine-in is notpreferred.Delivery not offered at Tai Er until 2019.It is unclear how the companyplans to revive sales

159、at its core Tai Er chain of restaurants in the currentscenario given it didnt offer delivery.Equity dilution.Recent capital injection by promoters led to a 2%+equitydilution in the company.Financials:Expansion led growth may pause innear term;downside risk to est.Asia Restaurant Sector:Disrupted.Opp

160、ortunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan28Source:CapitalIQConclusionJiumaojiu(9922 HK)s downside risk arises from(1)steep valuations and(2)likely downgrades to street estimates that assume strong earnings growth from a V-shaped recovery in 2021 and steady store expansions.We

161、think this is unlikely to materialize given its concept/casual dining restaurant based operations may not easily pivot to address customer demand for delivery/takeaway modes.Its flagship fish soup restaurant chain-Tai Er-didnt offer delivery until 2019.Its Jiumaojiu(9922 HK)restaurant sales were dow

162、n 61%in 1H2020 despite it offering delivery.However,the company has a strong balance sheet to wait out for dine-in demand recovery thanks to IPO funds and recent capital injection(and equity dilution)by its promoters(funded by a sale of privately held shares,post lockdown).5.Xiabuxiabu Catering Mgt

163、Chn(520 HK):Nospecial sauce to fire up the stockHot pot restaurant chain with more than 1000 stores across China.Average customer-spend at half the levels as compared to flashiercompetitor Haidilao.In the news for the wrong reasons-foodscandal and foot-in-the-mouth corporate response.Sizeableshareho

164、lding by leading Private Equity firm(General Atlantic).COVID Impact and Response.Group suspended operation of most of itsrestaurants in mainland China in January 2020 voluntarily in an effort tocontain the spread of the epidemic.As of June,it reopened 866 of suchclosed restaurants.Investment Positiv

165、esFocus on delivery and brand building.In 2019,in order to expand thedelivery business,the Group(i)continued to expand the food ingredientdelivery and instant hotpot business-“XiaZhuXiaTang”that built up agrowing delivery business and increased the Groups competitive advantageagainst the traditional

166、 hotpot delivery model;(ii)rapidly developed theGroups geographical distribution focus,from 63 cities in 2018 to 84 cities in2019Key risks/concernsDeclining Same-store sales in 2019.Same-store sales of the Xiabuxiaburestaurants nationwide decreased by 1.4%in 2019,despite implementingmore sales promo

167、tions to stimulate customer spending,probably due toIntense competition in the market and weak economic growth.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan29Equity dilution likely.The company may issue shares to strengthen itsfinancial position

168、.As of 31 December 2019,Options to subscribe for anaggregate of 6,162,944 Shares(representing approximately 0.57%of thetotal issued share)have been granted by the Company and are outstandingunder the Pre-IPO Share Incentive Plan.Financials:Deteriorating operating margins pre-COVID adds to risk profi

169、leSource:CapitalIQConclusionXiabuxiabu Catering Mgt(520 HK)s downside risk on earningscontinues as its hotpot style casual dining format may not easily adapt torising consumer preference for delivery/takeaway.We believe hotpot stylecommunal dining could remain out of favor with customers for now giv

170、ensocial distancing norms and heightened hygiene consciousness.Thecompany was not on strong operational or financial conditions even prior tothe pandemic as evident from declining same-store-growth(SSG),fall inseat turnover rate,deteriorating margins,and lower profitability in 2019 vs2018.Without a

171、core long term value/growth proposition,and ongoingtough operating conditions,AVOID the stock despite seemingly inexpensiverelative valuations.6.Jollibee Foods(JFC PM):QSR-King withglobal aspirations,near term risksThe largest branded Asian consumer foodservice(F&B retail)playerwith over 6000 outlet

172、s across multiple brands and countries.Itseponymous QSR-brand-Jollibee-has a dominating presence in thePhilippines and is now sold internationally.The companys globalaspirations and presence in over 34 countries including the USA areunique for a consumer staples company from developing Asia.ItsAsia

173、Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan30early expansion outside of the Philippines seems to have beenoriginally led by the large contingent of Filipino diaspora across theworld.Over the past decade,however,it has acquired several regionalQSR b

174、rands and also invested in franchisee rights of bigger brands tofuel its growth ambitions in China and the rest of the world.Jollibee is indeed BIG in the Philippines but nowis expanding globallySource:CompanyCOVID-Impact and Response.In Jollibees domestic Philippines market,tough local restrictions

175、 during the COVID crisis saw the company closingdown 70%of its stores temporarily.In North America,it suspended its Dine-In services but continued serving its customers through on-line Delivery toHomes and Take-Out business.In Singapore,its delivery business grew by256%in the crisis period versus a

176、year ago,leading to the same-store salesgrowth of 4%.With the fall in dine-in demand,it is improving its deliveryservice to reach out to customers closing down unviable branches.Investment PositivesGrowth through acquisitions and investments(Smashburger and CoffeeBean&Tea Leaf)could begin to yield r

177、eturns by next year according toChairman Tony Tan CaktiongDominating market presence in the Philippines with a basket of brandsto cover multiple segments within QSR;strong edge over thecompetition.Global aspirations for growth across QSR space.QSR player with good value for money proposition.Expect

178、this modelto outperform dining focused players given(1)social distancing norms(2)affordabilityDeliveries and takeaways offset the drop in dine-in customers.According to the management,food ordering platforms have helpeddrive delivery sales growth.Asia Restaurant Sector:Disrupted.Opportunities/Challe

179、nges Ahead-Time to Pivot&PersistDevi Subhakesan31Plans to open new Jollibee stores as rents fall in prime locations asconsumers will shift from fine and casual dining to better value fast-food meals.Robust supply chain and logistics mechanism to support operations.Expanding its China presence is par

180、t of a growth strategy.JFC acquiredits first foreign brand Yonghe King,a fast-food chain in China.InChina,it also has Dunkin Donuts,Hong Zhuang Yuan,and Jollibeeoutlets.Master plan for China growth:Franchisee rightsfor TimHoWan&Dunkin DonutsSource:CompanyKey risks and concernsMacroeconomic headwinds

181、 could impact consumer spending-willingness&affordability-on branded foods in developing marketslike the Philippines.The narrow profit margin on operations leaves it with little pricingpower to offer discounts to drive sales in a weak economy.Acquisitions have stretched the balance sheet.Prolonged C

182、OVID-impact on earnings could pose tough financial conditions.Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan32Financials:Low margin operations,highleverage,and difficult environmentSource:CapitalIQConclusionJollibee Foods(JFC PM)near term stock u

183、pside could be limited givenlikely protracted recovery from the COVID crisis versus regional peers.Itderives nearly 70%of its revenues from the Philippines,where lockdownshave been in place since mid-March.Even as pandemic concerns begin toease,the economic impact on developing countries like the Ph

184、ilippinescould affect consumers ability and willingness to spend even at QSRs.Thecompanys low margin operations leave it little room to lower prices to boostsales.Key upside risk is the possible turnaround in recently acquiredoverseas ventures-Coffee Bean&Tea Leaf and Smashburger.Its leveragedBalanc

185、e sheet(following the global acquisitions)also increases the riskprofile.Wait for better visibility on revenue and margin recovery beforeinvesting in this high-quality food service player with global growthaspirations.7.Jubilant Foodworks(JUBI IN):Delivery-centric QSR model comes in handyJubilant Fo

186、odWorks Limited runs the largest QSR chain in India.Ithas exclusive rights to develop and operate Dominos Pizza in India,Sri Lanka,Bangladesh,and Nepal and Dunkin Donuts brand in India.It has also entered into the Chinese cuisine segment with the launchAsia Restaurant Sector:Disrupted.Opportunities/

187、Challenges Ahead-Time to Pivot&PersistDevi Subhakesan33of its first indigenous restaurant brand,Hongs Kitchen.With itspresence across 282 cities and 1,400+restaurants,Jubilant has widecoverage across urban India.Indias dominant QSR chain had the mostinnovative response to COVID crisisSource:CompanyC

188、OVID Impact and Response.The company could be credited with themost innovative response to the COVID crisis when lockdown restrictionsimpacted regular operations.It tied up with leading consumer staplesplayers to deliver essential groceries to customers with digital paymentprocessing and deploying i

189、ts delivery platform.We rate it more a testamentto the companys ability to respond to customer needs with innovativesolutions.Investment PositivesDominant QSR chain in India way ahead of the competition with anetwork reaching out to even smaller cities across the countryWell-positioned to ride deman

190、d for food delivery given its deliverycentric model and digital platform.2/3 of the sales of Dominos comesfrom delivery and takeaway.Expected to benefit from potential gains from sector consolidation-better bargaining power with landlords to renegotiate rentals lower,increased market shareCentralize

191、d distribution point for stores and logistic strength helped inthe quick restart of the storesStrong and steady operating metrics and sales growthAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&PersistDevi Subhakesan34Source:Company,InvestoryKey risks and concernsMacroe

192、conomic headwinds could impact discretionary spendingincluding the consumption of branded fast food amongst the middleclass in India.Financials:Robust margins and steady growthhas supported stock performanceSource:CapitalIQConclusionJubilant Foodworks(JUBI IN)s upside potential is backed by its abil

193、ity torecover swiftly from the COVID crisis thanks to its existing delivery-focusedoperations,digital capabilities,and wide market coverage.It also stands tobenefit from the impending industry consolidation as extended months oflockdown and restrictions force unorganized players to exit the market g

194、iventheir limited financial resources and difficulty in hiring back low-costmigrant laborers.This would improve market share for organized players likeJubilant and also add to their relative bargaining power with landlords inAsia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Piv

195、ot&PersistDevi Subhakesan35terms of rental renegotiations.Its relatively expensive valuations suggestthat stock is likely pricing in most of the expected earnings upside.Jubilanthistorically has enjoyed high valuation multiples given its superior growthtrajectory,high margin operations,and status as

196、 the only listed restaurantstock in India.Thank you.If you found this Insight useful in your investmentanalysis and/or it gave you further food for thought,please clickAPPRECIATE.It means a lot to us!And do feel free to post us yourqueries.FOLLOW us on Smartkarma for Investment ideas/analysis in Asi

197、aConsumer sector and Updates on Emerging trends in discretionaryConsumption,globally.Disclosure&CertificationThank you.Hope you found the report helpful in your investment analysis.Will highly appreciate if you click Appreciate!We primarilywrite about Asia consumer sector related stocks/investment t

198、hemes with special focus on emerging trends,disruptions and new ideas.I/We have position(s)in one or more of the securities referenced in this insightViews expressed in this insight accurately reflects my/our personal opinion(s)about the referenced securities and issuers and/orother subject matter a

199、s appropriate.This insight does not contain and is not based on any non-public,material information.To the best of my/our knowledge,the views expressed in this insight comply with Singapore law as well as applicable law in thecountry from which it is postedI/We have not been commissioned to write th

200、is insight or hold any specific opinion on the securities referenced thereinI/We have signed the Insight Provider Agreement and this insight does not violate any of the terms specified therein.Devi Subhakesan(18 Jul 2020)Asia Restaurant Sector:Disrupted.Opportunities/Challenges Ahead-Time to Pivot&P

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