Xiabuxiabu Catering Management China offers ‘recipe for pot of gold,’ Daiwa says

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Daiwa started Xiabuxiabu Catering Management China at Buy with a HK$20 target price, saying the stock is “a recipe for a pot of gold.”

“Xiabuxiabu (XB) is a leading quick and casual hotpot chain restaurant operator in China and one of the top-100 catering companies in China by revenue,” Daiwa said in a note on Monday. “By leveraging on China’s recovering catering services industry and improving disposable income, we believe XB will benefit from a scalable casual hotpot model and see its new initiatives with Xiabu 2.0 stores, Coucou, delivery and condiments businesses as key growth engines.”

It added that it was positive on XB’s foray into condiments as it was an under-penetrated market in China, and the note pointed to a fast-growing market for hotpot condiments, citing Frost & Sullivan data forecasting 15 percent compound annual growth rate (CAGR) over 2016-20.

Daiwa said the stock was currently trading at 23 times 2018 price-to-earnings ratio.

“We believe current valuations have not yet priced in the growth potential of XB’s scalable business model, peer-leading margins and new growth initiatives,” it said.