Woes lift Cafe hopes

CAFE de Coral Holdings' main line of business is a chain of fast-food restaurants that could benefit from Asia's economic slowdown.

Merrill Lynch has put a long-term buy recommendation on the stock.

Merrill said the company could see margins improve through cost containment.

Diversification into food processing and further expansion in institutional catering 'should start to bear fruit', the brokerage said.

It was likely Cafe de Coral's cut-price fare would continue to benefit from Hong Kong's recession. The average per head spending at the outlets was $27.

The company plans to keep only five or six Cafe de Coral outlets in the mainland, focusing its attention on Guangdong province.

Merrill Lynch said it believed this was the right move, given the weak consumption and strong competition in the mainland.

The stock has underperformed the market 4 per cent in absolute terms, but Merrill Lynch said it was likely to 'play catch-up'.

The brokerage expects operating margins to rise to 8.4 per cent this year from 7.9 per cent last year.