野村证券:中国酒店行业研究报告2009年2月

We initiate coverage of the China restaurant sector with a NEUTRAL view.
Deflationary pressure and consumer down-trading will likely lead to tough
comparisons in 1H09, which should provide opportunities to differentiate between
the winners and losers. With a 5% market share of overall eating-out consumption,
we believe the sector has secular growth potential. Unit expansion will be the key
earnings growth driver and we expect 30-40% unit expansion in 2009. We prefer
companies with low per-capita spending, strong execution capabilities and cash
positions. We initiate coverage with BUY ratings on Cafe De Coral and Little
Sheep, REDUCE on Fu Ji Catering and NEUTRAL on Ajisen.
􀂄 1H09 will see tough comparisons: Nomura’s economics team expects nominal
retail sales to slow to 12.0% and 10.9% in 1Q and 2Q09, before picking up to
12.6% and 13.8% in 3Q and 4Q09, respectively. Against such a backdrop, we
expect same-store sales (SSS) growth to slow to 0-3% in 1H09 from 8-15% in
1H08. Companies with low per-capita spending and in inland cities should fare
better than high-end restaurants and those in tier 1 cities and coastal China.
Aggressive expansion in previous years could lead to the closure of underperforming
restaurants. Nevertheless, falling food costs, an expected decline in rentals and
cutbacks in new store openings should provide some support to margins.
􀂄 Improving food safety awareness and rise of the middle class drive consumer
preferences of chain restaurants: The World Bank forecasts the middle class in
China will grow to 900mn people by 2030, three times today’s US population.
Chain restaurants have established food processing and sourcing capabilities.
􀂄 Unit expansion is the key earnings growth driver: The China restaurant chains
in our coverage universe have 300-400 units vs KFC and McDonalds’s 2,400
and 1,000 units. National expansion will be an ongoing industry theme and
execution is the key success factor. Industry consolidation is expected to
accelerate in 2009 as small companies find it difficult to continue with operations.
􀂄 BUY Cafe De Coral (CDC) and Little Sheep. REDUCE Fu Ji and NEUTRAL on
Ajisen: We believe CDC will benefit from consumer down-trading in the current
economic recession in Hong Kong. We believe Little Sheep’s strong SSS growth
should outgrow labour cost pressure. We recommend investors to avoid Fu Ji
Catering, due to high balance sheet risk. We believe Ajisen may face near-term
headwinds given its high-end QSR position and Shanghai focus.

Table of Contents
Coverage summary ............................................................................................ 3
Investment summary ............................................................................................ 4
Valuation comparisons ........................................................................................ 5
P/E band charts ................................................................................................ 7
Balance sheet comparison................................................................................... 8
Slowing comps expected in 1H09, but margin gets support from falling input costs........ 9
Industry consolidation supports secular growth outlook............................................. 13
Unit expansion is the key earnings driver .............................................................. 15
Investment risks ................................................................................................ 20
Earnings sensitivity............................................................................................ 21
Company section............................................................................................. 25
Conviction BUY: Cafe De Coral – A ‘delectable’ choice ..................................... 26
Conviction BUY — Little Sheep: Reshaping the 'hot pot' scene.............................. 41
Conviction REDUCE: Fu Ji Catering — Balance sheet is the key risk....................... 52
Ajisen China: Not an easy transition ............................................................... 62