Cinda: First time covering XIAOCAIYUAN (00999) with a "buy" rating. Target price is HKD 13.02.

Cinda released a research report stating that XIAOCAIYUAN (00999) is a leader in popular Chinese casual dining, committed to providing a "delicious and affordable" dining experience that meets consumers' pursuit of value for money. The company is in a rapid expansion phase and is expected to drive steady income growth even in the context of declining same-store sales (mainly due to a decrease in per capita consumption). The company's improved supply chain system and optimized single store model are expected to enhance operational efficiency. The bank forecasts EPS of 0.65/0.79/0.94 yuan per share for 2025-2027, initiates coverage with a "buy" rating, and sets a target price of 13.02 Hong Kong dollars. Key points from Cinda are as follows: Company Overview The company is a leader in popular Chinese casual dining in China. With the main brand "XIAOCAIYUAN," the company is committed to providing a "delicious and affordable" dining experience and also owns 5 other brands such as "Cai Shou," "Guan Di," and "Fu Xing Lou." As of the end of June 25, the company had 672 "XIAOCAIYUAN" stores. According to Frost & Sullivan, "XIAOCAIYUAN" ranks first among all brands in the Chinese popular Chinese casual dining market with an average price of 50-100 yuan in terms of store revenue in 2023, with a market share of 0.2%. Rapid store expansion, excellent single store model, and broad store opening space Starting in 2023, the company entered a period of rapid store expansion, opening more than 100 stores each year. According to the company's official public account, as of the end of November 2025, there were 816 national directly operated stores (including those not yet opened). The company plans to have around 1000 "XIAOCAIYUAN" stores by the end of 2026. New stores have shown excellent performance in terms of cash flow, with the first breakeven period for new "XIAOCAIYUAN" stores generally being 1-2 months; as of the end of August 2024, the average investment payback period for stores that had already recouped their investments was around 13.8 months. Store profit margins are also impressive, with OPM for the first 8 months of 21/22/23/24 being 15.9%/14.2%/19.7%/17.8%. According to the bank's assumptions and calculations, store OPM is expected to reach over 20%. Self-built and improved "centralized purchasing + central kitchen + full cold chain warehousing and logistics + digital management" supply chain system The company has a central kitchen in Anhui, which allows store employees to save time and effort on labor-intensive processes, enabling them to prepare dishes faster with clean vegetables, further enhancing the standardization level of back-end operations and the operational efficiency and profitability of stores. The company has started building a new central kitchen in Ma'anshan. The self-built full cold chain warehousing and logistics supply chain system ensures precise daily distribution to all stores, guaranteeing the freshness of operating ingredients. Currently, the majority of ingredients are centrally purchased, and with a large purchasing volume and a competitive price mechanism, the company has strong bargaining power, leading to a decrease in raw materials and consumables/revenue from 34.5% in 2021 to 29.5% in the first half of 2025. Front-end, back-end, and expansion all achieve standardized operations Continuously improving standardized management and operational models covering aspects such as standardized dishes, service, integrated supply chain, normal training, food safety and quality control standards, and store expansion, helping the company to expand rapidly and reduce costs while increasing efficiency. Risk warning: Impact of macroeconomic conditions on the restaurant industry, food safety risks, new store expansion falling short of expectations, and significant decline in same-store sales.