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Enoch Yiu

As e-commerce catches on and consumers ditch the shopping trolley for the mouse, malls are finding it increasingly difficult to survive. But unlike transactions for clothes or cosmetics, a meal with friends still cannot be digitised. Enter restaurants, which are filling the void left by retailers struggling to pay mall rents.
That works out fine for malls but not so much for mall-type restaurants that are beginning to lose ground to newer entrants.
“This may save the shopping malls but it also increases competition for restaurants. We expect quick service restaurant (QSR) companies with a strong presence in shopping malls, such as Ajisen, to face near-term…pressure,” said Charlie Chen, an analyst of BNP Baribas in a report.
Chen said that at their peak in 2011, Shanghai shopping malls generated a total revenue of 165 billion yuan (HK$209 billion), with restaurants only representing 15 per cent of the total.
Last year, shopping mall income dropped to 90 billion yuan while contribution from the restaurant business rose to 28 per cent.
“As a leading indicator in China, we believe this change in Shanghai will be followed by other cities nationwide,” he said.
Chen said many Hong Kong-listed quick service restaurant companies, such as Ajisen, Shanghai cuisine Xiao Nan Guo and hotpot operator Xiabu Xiabu, have all announced aggressive store expansion plans for this year.
“Our concern is that any new stores are likely to be less profitable – in some cases even loss-making – and that quick store expansion could lead to further margin pressure.”
He said pioneers of shopping mall catering such as Ajisen are likely to suffer the most from this trend.
A few years ago, Ajisen was a “must have” for shopping malls for its image as a big brand for a Japanese-style fast dining restaurant.
“However, as malls bring more restaurant brands into their premises, existing players are likely to lose market share,” Chen said.
For the longer term, however, BNP is still positive on the quick services restaurant sector as Chen said they would continue to benefit from rising personal income.
As such, BNP still maintains a “buy” on Ajisen, with a target price of HK$5.60, compared with HK$4.8 at the close on Tuesday.
“Also, with good cash flows and cash reserves, we believe Ajisen could be a good acquisition target,” Chen said.
Credit Suisse, however, has a different take on Ajisen, giving it a neutral rating and a target price of HK$4.5.
“We are concerned about Ajisen’s overall branding in China. We have yet to see concrete signs of brand or operating improvement,” said a Credit Suisse report by analysts Sophie Chiu and Kevin Yin.
“We reiterate Xiabu Xiabu (XBXB) as our top pick among the catering peers,” the Credit Suisse report said. It gives the hotpot company a target price of HK$6.5, compared with its Tuesday close of HK$4.99.
It bases its estimate on Xiabu Xiabu’s unique and scalable business model in which the hotpot chain operator does not need to hire chefs or expand central kitchen as customers cook their food themselves.


Quick service restaurants in China filling the void in malls

A spiral escalator in a shopping mall in Shanghai where quick service restaurants are attracting the attention of stock market analysts. Photo: Reuters

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.css-1m2rp1p{color:#34b8b5;}Portfolio | Quick service restaurants in China filling the void in malls

Portfolio | Quick service restaurants in China filling the void in malls