Hong Kong’s largest fast food chain Cafe de Coral serves up 16pc increase in first-half profit
- But minimum wage increase set to take effect next year may weigh on profitability
Cafe de Coral, Hong Kong’s largest fast food chain, beat analysts’ expectations as it posted a 16 per cent jump in first-half profit driven by lower raw material costs and steady wages.
Net profit rose to HK$239.1 million (US$31 million) for the six months ended September 30 from HK$205.7 million in the same period last year, while revenue rose 1.7 per cent to HK$4.2 billion, according to the company’s statement.
Walter Woo, an analyst at CMB International Securities, had forecast a 7.2 per cent rise in profit, while Barney Wu at Guotai Junan Securities said it was “above his expectations”.
Peter Lok Tak-sing, chief executive of Cafe de Coral, said that the gross profit margin had improved to 12.3 per cent from 11.9 per cent as the “prices of raw materials have been stable this year”.
The company’s profits took a hit last year as it had increased average hourly wages by a quarter after receiving complaints of overworking its staff.
“This time around they were hardly under pressure to increase wages again this year,” said Woo of CMB International Securities.
But another increase to the minimum wages set to take effect in May could pose a challenge to the company. The extent of the raise is still being debated by Hong Kong’s lawmakers.
The change could push up the overall labour costs across Hong Kong’s restaurant sector, even though Cafe de Coral currently pays its staff on average over HK$50 per hour – above the current minimum standard of HK$34.5, according to Lok.
Cafe de Coral’s net profit fell 11.3 per cent to HK$205.7 million in its first-half of 2017 after the wage increase.
Founded in 1968 in Hong Kong, Cafe de Coral now runs 463 outlets with 98 of them in mainland China.
The company also operates brands including The Spaghetti House, Oliver’s Super Sandwiches and Shanghai Lao Lao.
Revenue from its mainland shops rose 7.7 per cent to HK$590.7 million, accounting for 14 per cent of overall revenue.
Cafe de Coral is now focused on the southern Guangdong province, which is close to Hong Kong, after shutting all outlets in eastern China last year.
The company’s shares closed 6 per cent higher at HK$18.26 on Monday. They have declined 13 per cent since the beginning of this year, against a 15 per cent slump in the benchmark Hang Seng Index.
The company also said it would pay an interim dividend of 19 HK cents per share.