Tsui Wah rivals Fairwood and Café de Coral are better options, analyst says
The café chain may show good profitability but Fairwood and Café de Coral are probably more attractive in terms of investment, analyst says
Café chain Tsui Wah may be a better performer than its rivals in terms of profitability, but an analyst said that when the price-earnings ratios of Fairwood and Café de Coral are taken into account, they may be better options for investors.
In the six months to September, Tsui Wah's net profit jumped 32 per cent to HK$85.49 million, while its gross profit margin stood at 69.8 per cent, compared to a 4.9 per cent increase in net profit for fast-food chain Fairwood, whose gross profit margin edged down to 14 per cent during the same period.
While Fairwood saw business stagnate on the mainland, Tsui Wah, which added five stores there earlier this year, said it would add five more before the end of March next year, bringing its number of stores in the region to 44.
According to its filing to the Hong Kong stock exchange yesterday, mainland consumers' average spending amounted to HK$200 per head, nearly tripling that of HK$77 for local consumers. The group's chief executive Anthony Lock Kwok-on said a lack of breakfast menus - which cost less than lunch and dinner on the mainland - was the main reason behind the difference.
By comparison, Fairwood will close several underperforming stores on the mainland in light of a double-digit fall in same-store sales during the March-September period, although it will open two to three more in Guangzhou and Shenzhen.
Kenny Tang Sing-hing, an analyst at AMTD Financial Planning, said Tsui Wah's positioning as a Hong Kong-style café, or cha chaan teng, is much more attractive for mainland consumers than fast-food chains like Fairwood and Café de Coral.
" Cha chaan teng is a high-end dining concept to mainland consumers. If they want cheap food, they have many local options. Hong Kong players simply cannot compete with their local counterparts with prices," Tang said.
Tsui Wah raised prices by 5 per cent early this year, compared to an increment of 0.6 per cent for Fairwood. Café de Coral, which will release its interim results today, has raised prices three times this year.
Leung Kong-sang, a senior lecturer of business and management at London's Glyndwr University, said although Tsui Wah's gross profit margin was much higher than Fairwood and Café de Coral, the difference in net profit margin was much narrower, with 12 per cent for Tsui Wah last year and between 7 and 9 per cent for the other two.
Shares of Tsui Wah are trading at about 47 times its earnings for last year, while the ratios are 27 times for Café de Coral and 14.5 for Fairwood.
With Fairwood expecting a turnaround in its mainland business after March next year, Leung said it might make a more attractive investment than the other two operators.