New Catering Ventures Like Halal Hot Pots May Raise Costs But Aim To Capture New Markets

Key Takeaways

• Rapid expansion and new projects could increase short-term expenses and impact net margins despite potential revenue growth.
  
• Increased employee costs and varied consumer behaviors in new markets might challenge short-term profitability and margin growth.
  
• Successful international expansion and strategic localized marketing boost revenue growth and market diversification, enhancing customer satisfaction and financial resilience amidst competitive pressures.

Catalysts

An investment holding company, operates Haidilao branded Chinese cuisine restaurants in Asia, North America, and internationally.

• The company is planning significant expansion with over 10 new projects already signed and more in preparation across different regions. While this could increase revenue, the rapid increase in new stores might not be immediately profitable and could lead to increased expenses, impacting net margins in the short term.
  
• The company is actively exploring new catering projects and brand incubations, such as halal hot pots and noodle shops. These initiatives could lead to higher R&D and marketing expenses, possibly impacting short-term earnings as they establish their market presence.
  
• The increase in employee costs due to hiring more store employees and minimum wage increases could squeeze net margins, especially in regions where labor costs are rising significantly faster than revenue growth.
  
• The company's focus on opening in lower-tier cities and new markets may not guarantee immediate success due to potentially slower customer uptake and different consumer behaviors, potentially impacting revenue and net margin growth rates.
  
• Efforts to standardize and improve operational efficiency and customer satisfaction are aimed at long-term profitability but involve upfront costs in personnel training and system adjustments, which may impact short-term operating costs and earnings.

Super Hi International Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Super Hi International Holding's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.5% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $80.2 million (and earnings per share of $0.12) by about February 2028, up from $56.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $94 million in earnings, and the most bearish expecting $61.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, down from 26.8x today. This future PE is greater than the current PE for the HK Hospitality industry at 16.6x.
• Analysts expect the number of shares outstanding to grow by 1.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.81%, as per the Simply Wall St company report.

Super Hi International Holding Future Earnings Per Share Growth

Risks

• Super Hi International Holding has reported a significant increase in revenue by 14.6% year-over-year, indicating strong sales growth and potential future revenue stability or growth if such trends continue.
  
• The company's implementation of operational efficiencies, including supply chain optimization and management tools, has improved the operating profit margin to 7.5%, suggesting potential for maintaining or enhancing net margins.
  
• Successful international expansion and new store openings in various countries provide opportunities for revenue growth and market diversification, potentially sustaining earnings.
  
• The company's strategic focus on localized marketing and product innovations, such as their highly popular pork belly dishes, may enhance customer satisfaction and spending per customer, potentially boosting revenues.
  
• Despite competitive pressures, the company benefits from favorable foreign exchange gains that positively impact net profits and could provide additional financial resilience.

Valuation

• The analysts have a consensus price target of HK$16.287 for Super Hi International Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$18.68, and the most bearish reporting a price target of just HK$15.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $80.2 million, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of HK$18.2, the analyst price target of HK$16.29 is 11.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.