CICC: First give GREEN TEA GROUP (06831) an outperform rating in the industry, with a target price of HK$10.

CICC released a research report stating that based on the income of 24 years, GREEN TEA GROUP (06831) is the top company in the domestic leisure Chinese cuisine cuisine in Jiangsu and Zhejiang. The bank expects the company's EPS for 25-27 to be 0.74/0.91/1.1 yuan, with a CAGR of 22% for 2025-2027. The current corresponding P/E for 26 is 7 times. We initially cover with an outperform industry rating, with a target price of 10 Hong Kong dollars, corresponding to a P/E of 10 times in 2026, with an upside of 47%. Potential catalysts include domestic same-store performance exceeding expectations and domestic store opening progress exceeding expectations. CICC's main viewpoints are as follows: Improvements in delivery and store expansion are driving the company's prospects 1) In terms of delivery, the proportion of the company's delivery revenue was lower than the industry average in 1H25. With the company expanding its delivery business, the bank expects future delivery revenue to continue to increase, contributing to performance growth; 2) In terms of store expansion, as of June 30, 2025, GREEN TEA GROUP's proportion of stores in second- and third-tier cities and below has increased from 21%/20% in 2022 to 25%/26%. The bank is optimistic about the company's further acceleration of penetration in lower-tier cities. In addition, as of June 30, 2025, the company opened 5 restaurants in Hong Kong, and plans to open 10/13 restaurants in Hong Kong, Southeast Asia, and North America in 2026/2027, steadily advancing its international layout. Continual research and development of new dishes to attract and optimize the single store model 1) Fusion dishes naturally attract a diverse consumer base with low fashion risk and strong resilience by combining flavors from different regions. As a leading fusion cuisine company, the company has strong dish development capabilities, continues to attract new customers, and creates a comfortable dining environment with Chinese aesthetics to enhance brand image; 2) Continual optimization of the single store model, GREEN TEA GROUP has reduced store size from 450 square meters to 300 square meters, reducing costs such as rent and personnel expenses, laying the foundation for accelerated expansion of national business. The biggest difference between the bank and the market "Fashion risk" is still the core concern of the market. The company seeks new anchors in affordable casual dining by reducing investment through optimizing the single store model, increasing the proportion of delivery to improve same-store performance (the bank expects to increase from 23% in 1H25 to 28% in 2026), and finding new customer base. In addition, the bank believes that GREEN TEA GROUP has good valuation attractiveness. Risk Warning: Store opening progress falls short of expectations, intensified industry competition, food safety risks.