CICC: Maintains outperform rating on GUMING (01364) with a target price of 36 Hong Kong dollars.

CICC releases research report stating that it maintains GUMING (01364) current profit forecast and target price at HK$36. The company is trading at 12x/10x P/E ratio for 26/27 years, with valuation and shareholder returns both showing strong attractiveness at its current position. The outlook is positive for the company to continue increasing its market share and solidifying its competitive position, therefore maintaining an outperform industry rating. Key points from CICC: Company recent status The company announced to issue HK$1.96 billion zero-coupon convertible bonds, with an issuance date on July 2, 2026 and maturity date on June 30, 2027. The issue price is 101% of the principal amount, and the initial conversion price is HK$23.54 per share, representing a 15.5% premium to the closing price on June 23, 2026 and a 10% premium to the average price of the past five days. The bonds can be converted into up to 83,262,531 shares, accounting for approximately 3.5% of the current share capital. The net proceeds will be used for raw material procurement, capital structure optimization, research and development, and overseas expansion. In order to hedge the bond issuance, the company plans to repurchase 34,000,400 shares at HK$20.38 per share, representing 1.43% of the total share capital with a total amount of approximately HK$693 million. The repurchased shares will be cancelled to stabilize the stock price, reduce dilution from conversion, and enhance earnings per share. At the same time, the controlling shareholders (Wang Yun'an, Qi Xia, Ruan Xiudi, and other concerted parties) have committed not to reduce their shareholding for 90 days from the subscription agreement date, and only allow the use of shares for Delta hedging through share lending agreements. Simultaneously implementing share repurchases to stabilize the stock price and optimize the capital structure, enhancing shareholder returns The company's use of offshore zero-coupon convertible bonds and simultaneous repurchase cancellation hedging plan allows for low cash cost of the bonds and more flexible cash use arrangement. The simultaneous repurchase cancellation hedges against dilution from conversions, stabilizes the stock price, and enhances shareholder returns. With the shareholder meeting resolution passed earlier authorizing repurchases, the company can repurchase up to 10% of the total issued shares during the specified period. Apart from the simultaneous repurchase, the company is expected to continue repurchasing shares to demonstrate its commitment to enhancing shareholder returns. Year-to-date same-store performance meets expectations, store opening pace expected to accelerate in the second half of the year Rainy weather in April and May slightly affected performance, but the impact on delivery sales was limited, as delivery accounted for less than 50% of total sales, lower than the same period last year. Franchisee profitability and collection rates are at a healthy and controllable level. The company is expected to have slightly fewer store openings year-to-date compared to the same period last year, primarily due to a focus on improving store quality and stricter site selection, as well as the replacement of 6th generation stores that have performed better in the first half of the year. The company is expected to accelerate store openings in the second half of the year. Risk warning: Intense industry competition, slowing store expansion pace, decline in store effectiveness.