Crosby Research: Hop Hing (47 HK): Challenging environment in 1H20, trading attractively at 5.8x 19PE
Hop Hing reported 5% YoY growth in FY19 sales to Rmb2.1bn, driven by i) 1.3% SSSG; 2) 38 net new stores; and 3) 9.4% growth in delivery business. GPM dropped slightly by 0.4ppt to 62.8% due to rising food cost pressure, which is partially offset by increased ASP in certain products. Labor cost ratio was up by 0.3ppt to 14.8% amid increase in store count and discretionary bonuses via the incentive scheme to motivate front-line staff, which see improvements in operational efficiency. Rental ratio was down by 0.4ppt to 12.2% as new stores are smaller in size which is more suitable to the new retail+delivery model. NP was up by 0.6% YoY to Rmb104m as a result, with NPM dropped by 0.2ppt YoY to 5.0%.