Shares of China hotpot chain Haidilao surge 20% as Covid-19 cost cuts bear fruit
Sign up now: Get ST's newsletters delivered to your inbox
Haidilao took a hit in 2022 as China’s sweeping Covid-19 lockdowns hurt retail spending. It closed 26 restaurants in the first half of last year, while its founder Zhang Yong stepped down as chief executive in an overhaul last March.
PHOTO: REUTERS
Follow topic:
HONG KONG – Shares of China’s hotpot chain Haidilao International Holding jumped the most in a year after the firm forecast a return to profitability, underscoring bets for a revival in consumption in the world’s No. 2 economy.
The stock rose as much as 20 per cent in Hong Kong, the most since March 2022, to outperform all its peers on the benchmark Hang Seng Index (HSI) on Monday.
Haidilao said late on Friday that it expects to post a net income of no less than 1.3 billion yuan (S$252.3 million) in 2022, versus a loss of 4.2 billion yuan in the previous year.
It attributed the better outlook to efforts to streamline operations, as well as a gain of around 329 million yuan recognised on cancellation of bonds due in 2026, even as revenue is expected to fall by about 16 per cent.
“This result suggests that operating efficiency driven by cost-control measures is even stronger and faster than we thought,” Morgan Stanley analysts wrote in a note.
“We expect consensus to revise up 2023 earnings forecasts based on this margin surprise,” they said.
Seen as one of the major beneficiaries of China’s reopening, Haidilao saw its shares rally 117 per cent from November through early January, with the stock ranking among the best performers on the HSI last year.
Haidilao’s projection mirrors the optimism surrounding China’s economy as the easing of strict Covid-19 curbs unleashes a wave of consumer spending.
While some of the euphoria has faded, Morgan Stanley said last week that the shares have yet to price in a normalisation in demand for the rest of the year.
Haidilao took a hit in 2022 as China’s sweeping Covid-19 lockdowns hurt retail spending.
It closed 26 restaurants in the first half of last year, while founder Zhang Yong stepped down as chief executive
“We expect its table-turn to further improve sequentially upon China’s reopening,” Citigroup analysts wrote in a note.
Given the new cost structure and more flexible staffing, “stores being reopened will have a much lower sales threshold to achieve break-even than in prior years”, they added. BLOOMBERG
