Despite the recovery of the catering market, the performance of Hong Kong catering stocks has not been satisfactory, and the stock prices of many catering stocks have continued to decline.
Among them, Hong Kong's local chain restaurant group Tam Jai International (02217HK) share price has been very sluggish in the past year, with a cumulative decline of more than 50%, and the stock price has hit a record low recently. As of 15 February**, TJI's market capitalisation was only 14HK$5.4 billion, and almost became a penny stock.
The weak share price was due to TJI's operating performance being tested under challenging market conditions.
Profit after tax excluding one-off allowances increased significantly in the first three quarters of FY24
TJI announced its financial results on 14 February, which showed that for the nine months ended 31 December 2023 (the first three quarters of FY2024), TJI recorded revenue of 20HK$7.1 billion, a year-on-year increase of 73%；Profit after tax10.8 billion Hong Kong dollars, a slight decrease of 2 year-on-year7%。
In fact, TJI's profitability has improved. Excluding the one-off subsidy of approximately HK$50 million recorded for the same period in FY2023 (zero for the same period of FY24), TJI's profit after tax for the first three quarters of FY2024 surged by 77% year-on-year. TJI said in the announcement that the increase was mainly due to the improvement in the Group's business performance in Hong Kong during the period. Interest income from bank deposits increased during the period compared to FY2023 due to the increase in market interest rates. The Group's operating loss outside Hong Kong decreased during the Period.
In the long run, in the past few years due to the impact of the epidemic, TJI's stores have maintained expansion and revenue has gradually increased, but the profit after tax has decreased year by year due to the increase in the cost of ingredients and staff. As the negative impact of the pandemic subsided, TJI's profit after tax decline narrowed in the first three quarters of FY24, with a significant increase excluding subsidies, reflecting that TJI's operations are gradually on the right track.
Under the adverse impact of Hong Kong people's northbound consumption, TJI's operating performance in the first three quarters of FY24 was not easy.
As a catering enterprise based in Hong Kong, TJI's operation is greatly affected by Hong Kong's local development. Over the past few months, the number of Hong Kong residents leaving the country in a single day has far exceeded the number of mainland visitors entering the country, which has had a negative impact on Hong Kong's local catering market. Taking December 31, 2023 as an example, according to the Hong Kong Immigration Department, the number of Hong Kong residents leaving the country on that day reached 29410,000, but the number of mainland visitors entering the country was only 19590,000 people.
As a result, TJI's Hong Kong business experienced weak sales performance in Q3 FY24, mainly due to the increasing number of Hong Kong citizens choosing to spend in Chinese mainland. Hong Kong cosmetics retailer Sa Sa International (00178HK) also previously stated in its third quarter report for FY2024 (for the third quarter ended 31 December 2023) that the number of departures from Hong Kong SAR exceeded visitor arrivals during this peak consumption season, which also challenged sales in the quarter.
What are the future growth prospects?
As for the growth prospects of TJI, some investment banks expressed optimism. Among them, Quam Construction Industry** recently believes in a research report that TJI's leading position in the mixian brand market and its stable financial position are very strong.
Wah Jai Development said** that TJI is revamping its restaurant layout and adjusting its menus to make the brand and dining options more appealing to cater to the tastes of local customers. TJI is embarking on a new multi-brand strategy, and recently signed a Hong Kong franchise agreement with Marukan Semen, one of the brands of its parent company Toridoll, which we believe will pave the way for further collaboration. New stores will be a growth driver, with TJI expecting a net addition of 10 stores in Hong Kong and more than 20 stores in Chinese mainland by FY2025.
The revenue growth in the first three quarters of FY24 was attributable to TJI's effective new product promotion, innovative marketing strategies and attractive promotions. Against the backdrop of a weak general environment, TJI's series of initiatives are conducive to reversing the unfavorable situation.
Hong Kong's local market has not performed well, but TJI has achieved good results in some overseas markets and Chinese mainland markets, and the company said that "overall it is gradually improving". In FY24, TJI's operating loss (at the restaurant level) outside Hong Kong narrowed significantly by 683% to 53470,000 Hong Kong dollars, close to profit.
In its third quarterly report, TJI said that TJI's business in Japan has made significant progress in terms of revenue growth and operating efficiency. However, sales performance in Singapore continued to stagnate. Chinese mainland's performance is still improving.
Last year, TJI adjusted its strategy in Chinese mainland by shifting its focus to Guangzhou and second-tier cities in the Greater Bay Area, opening seven new restaurants in Chinese mainland in the first half of FY24, mainly in Guangzhou, Dongguan, Zhongshan and Zhuhai. The new restaurant's financial performance was strong, with TJI's revenue from the Chinese mainland market surging 58 percent year-on-year in the first half of FY246%, and the operating loss narrowed.
With the expansion of TJI's stores in Chinese mainland, the improvement of restaurant layout and the adjustment of menus, TJI may achieve better performance in Chinese mainland in the future.
Author: Far away.