BOCOM INTL: Initiated coverage of BUSYMING (01768) with a "buy" rating, target price of HK$542.

BOCOM INTL released a research report stating that it is expected that BUSYMING (01768) will have a revenue CAGR of about 18% from 2025 to 2028, and an adjusted net profit CAGR of about 23%. The profit growth rate is faster than the revenue growth rate, demonstrating the characteristics of the volume sales model transitioning from a period of scale expansion to a profit realization period. It is expected that the adjusted net profit margin will steadily increase from 4.1% in 2025 to 4.6% in 2028. Based on a 25 times average price-earnings ratio for 2026-27, a target price of HKD 542.00 is given, corresponding to a PEG of 1.1, which is attractive compared to comparable companies, initiating a "buy" rating. BOCOM INTL's main points are as follows: Leading the snack retail industry in China, with a preliminary duopoly in the industry The bank had previously stated that the Chinese snack industry is undergoing a restructuring driven by channel efficiency, with the snack retail industry on a rapid growth trajectory. The industry has formed a duopoly led by BUSYMING and Fujian Wanchen Food Group (with a combined market share of over 70%). Looking ahead, the bank believes that the industry's competitive logic is shifting from store expansion and market share competition to simultaneous expansion and efficiency improvement. As a leading company in the industry, as of the end of 2025, BUSYMING had around 22,000 stores and a market share of around 40%, and is expected to achieve rapid and high-quality growth during this stage due to its scale advantage. Ample room for store expansion, with potential to enhance store value through category extension The company still has ample potential for store growth and is expected to further increase market share. The bank predicts that by 2028, the company's number of stores will reach close to 31,000, representing about 40% growth from the current levels. At the same time, the company is extending its product categories to include hot food, refrigerated, and frozen products, expanding consumption scenarios and average spending per customer, with the potential to further enhance store value. Profit model driven by efficiency, with profit margins entering an improvement phase The company's operational efficiency is at a leading level in the global retail industry, with a cash turnover cycle of only 5 days in 2025. The bank believes that the company is poised to experience a period of profit growth driven by the release of scale efficiency and optimization of the competitive landscape, benefiting from the slowdown in industry competition, the upstream bargaining power brought by the scale of thousands of stores, and the effective dilution of expenses by digital systems. The bank expects the company's adjusted net profit margin to steadily increase from 2026 to 2028. Combined with efficient asset turnover, the company is expected to maintain an industry-leading ROE of over 20% in the future. Risk warning: Intensified price competition due to industry competition; challenges in managing franchisees at a scale of thousands of stores; uncertainties in supply chain construction and store operation complexity management during the process of category extension; macroeconomic fluctuations.