Morgan Stanley lowered its target price for Xiabuxiabu Catering Management China (00520) to HK$9 from HK$12 and downgraded its rating to "underweight" from "equal-weight" on structural SSSG slowdown and margin pressure.
The research house said Xiabuxiabu now participates in the casual dining category, where competition is increasing and which has a current ASP of Rmb50+, versus the QSR (quick-service restaurant) category, where it previously participated in and which has a current ASP of Rmb30-40.
Morgan said a higher ASP from mix upgrades and fewer promotions has come at the cost of slower traffic during the brand upgrade this year. Meanwhile, it noted cannibalization due to the fast pace of store openings.
Morgan likes Xiabuxiabu management's focus on branding investment, but it thinks it will take time to bear fruit. Morgan lowered its earnings estimates for 2019-21 by 23-30% to factor in our lower SSSG forecasts and OPM estimates.
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