Caitong: Rated "Buy" for XIAOCAIYUAN (00999), positioned as the new leader in the mass market for convenience.

Caitong released a research report stating that XIAOCAIYUAN (00999), as a leading enterprise in the new Huizhou cuisine industry, is positioning itself in the mass convenience market. With a focus on "strong supply chain + direct operation model", the company is accelerating its expansion. It is initiating coverage with a "buy" rating. Key points from Caitong include: Founded in 2013, the company specializes in home-style Huizhou cuisine, emphasizing cost-effectiveness. Initially rooted in Anhui Province, the company built its own central kitchen and perfected its supply chain system. It then steadily expanded to other regions and promoted rapid store expansion through a fully direct operational model. By the end of 2024, the company had 667 operating stores, with a year-on-year growth rate of 23%. In the first half of 2025, the company's revenue reached 27.1 billion yuan, a year-on-year increase of 6.5%, with a net profit attributable to shareholders of 3.8 billion yuan, a year-on-year increase of 35.7%, showing outstanding performance. Competitive pricing in the mass convenience dining market is highly fragmented, and the industry leader is expected to increase market share. According to Frost & Sullivan data, the mass convenience Chinese dining market, driven by cost-effectiveness, has remained strong amidst the backdrop of the pandemic and consumer downgrading. From 2018 to 2023, this market maintained a compound annual growth rate of 3.8%, exceeding the 2.5% compound growth rate of the mid-to-high-end dining industry. In 2023, the domestic mass convenience dining market was worth 361.9 billion yuan, with the 50-100 yuan price range being the mainstay of mass convenience Chinese dining. Frost & Sullivan predicts that over the next five years, this market will continue to grow rapidly at a compound annual growth rate of 8.9%. The mass convenience Chinese dining market is highly fragmented, and the company is expected to rapidly increase its market share through chain operations and digitization. Self-built supply chain, excellent operational capabilities, and continuously optimized store model with strong replicability. 1) Self-built supply chain: The company leverages its self-built central kitchen and cold chain logistics system to ensure high-quality, low-cost, and stable supply of ingredients. 2) Standardized production process: The company ensures high-quality taste through precise cooking guidance and self-produced ingredient packages, while also providing supporting SOP and multi-dimensional training to drive efficient and standardized store operations. 3) Clear promotion mechanism and platform holding for excellent employees: The company's clear organizational structure and partnership system, as well as the master-disciple system, quickly promote talent. Over 90% of core employees are trained at the grassroots level. Additionally, the company continuously motivates talent by binding excellent store managers to employee holding platforms. Excellent store return cycle. The company's store operating efficiency continues to improve. By 2024, the average return cycle for the company's stores was 13.8 months, significantly higher than the industry average. Investment recommendation. As a leading company in the new Huizhou cuisine industry, catering to the mass convenience dining market, the company is rapidly expanding with the support of its supply chain and excellent operational capabilities. The bank predicts that the company will achieve operating income of 60.80/76.03/93.06 billion yuan and a net profit attributable to shareholders of 7.53/9.61/11.98 billion yuan for the years 2025-2027, with corresponding PEs of 15/12/9 times. Initiated coverage with a "buy" rating. Risk warning. Stiff competition in the Chinese catering industry, risks of rising raw material costs, slower store expansion than expected, food safety issues, risk of lifting restrictions on share sales, and brand risks associated with the direct operational model.