EB Securities: Initiate XIAOCAIYUAN (00999) with a "buy" rating, supply chain efficiency stabilizes quality and price.

EB SECURITIES released a research report stating that it had initiated coverage on XIAOCAIYUAN (00999) with a "Buy" rating. It is estimated that the company's net profit attributable to shareholders for 2025-2027 will be 750 million/922 million/1.132 billion yuan respectively, equivalent to EPS of 0.64/0.78/0.96 yuan, with corresponding PEs of 16X/13X/11X based on the current stock price. The company is a leading brand in the popular convenience Chinese cuisine track, with a positioning that aligns with the current consumer trend of seeking value for money. The company's strong counter-cyclical ability was further demonstrated during the National Day period. The company's expansion speed in the second half of 25H2 has accelerated, and there is still ample room for further expansion in the long term, with profit margin improvement potential under the advantage of the supply chain. Key points of EB SECURITIES' research report are as follows: Breaking through the mass catering industry, leading in popular Chinese cuisine XIAOCAIYUAN is a leading brand in the popular convenience Chinese cuisine chain, specializing in "new Anhui cuisine" with an average price per customer of 50-70 yuan. In 2023, the company's market share was 0.2% (by revenue), ranking among the top 3 Chinese style mass catering chain brands. By the end of September 2025, the company had 752 XIAOCAIYUAN brand direct-operated stores, focusing on community business districts. The supply chain has evolved from regional procurement to a national cold chain network, with concentrated ownership at the management level and a sound incentive system. In recent years, the company has shown strong revenue and profit growth resilience, leading in gross profit margin and net profit margin compared to peers, with low labor and rental costs. Store expansion in various cities, with the proportion of delivery business revenue increasing to 38.5% in 24 years. The golden age of popular convenience catering, XIAOCAIYUAN leads the way In the Chinese catering market, the scale of popular convenience catering (average customer spending below 100 yuan) was 3.617 billion yuan in 2023, accounting for 88.7% of Chinese cuisine, with a compound annual growth rate of 8.7% expected from 2023 to 2028 as the chain rate increases. The scale of Chinese community catering increased from 1.14 trillion yuan in 2018 to 1.37 trillion yuan in 2023, with a forecasted compound annual growth rate of 9.4% from 2023 to 2028. Consumers seek value for money and "the taste of home", and the competitive landscape in the popular convenience market is decentralized, with a CR5 sales share of only 0.8%. XIAOCAIYUAN brand leads with a market share of 0.2%, having advantages in the number of stores, coverage of provinces and cities, balanced distribution in cities, and differentiated regional layout from competitors. Leading in popular convenience Chinese cuisine with four key strategies The XIAOCAIYUAN brand targets the market with an average spending of 50-100 yuan, in line with consumer trends, and strictly controls the quality of ingredients. By forming cost barriers through centralized procurement, central processing, and cold chain distribution, each "small and refined" store requires an investment of 1.3-1.7 million yuan, with a shorter payback period than the industry average. On the product side, a combination of "cook-to-order" and standardization, serving in dining, delivery, and community stores, the sub-brand "Cai Shou" pilots community catering; the brand shapes values through trust mechanisms and cultural symbols. Growth is supported by the "headquarters-region-store" structure, with plans for domestic expansion and overseas expansion. Continuous expansion of direct-operated stores, looking forward to emerging community brands In the short term, in the second half of 25H2, the speed of opening XIAOCAIYUAN brand stores has increased. The company is improving profitability through optimization of the single-store model (area simplification, etc.). The company plans to have 800 XIAOCAIYUAN brand stores by the end of 25 years and 1,000 by the end of 26 years, expanding to the domestic market and overseas. In the long term, according to calculations, the XIAOCAIYUAN brand is expected to have 2,050 stores in the long term. The sub-brand "Cai Shou" focuses on communities with an average spending of 20-40 yuan, leveraging the supply chain of XIAOCAIYUAN brand, aiming to fill the gap in the low-price market of the main brand and increase overall penetration.