Weak catering demand to dampen Haidilao’s revenue growth in H2

Soft economic conditions will have consumers looking elsewhere.

Weak catering demand will slow down revenue growth for casual hot pot restaurant chain Haidilao International Holding Ltd, according to S&P Global.

According to its analysis, it forecasts slower revenue growth for the company in the second half of 2024, after a 13.8% year-on-year increase in the first half of the year. This is due to a softer growth outlook for China’s catering market. We have also revised downward our revenue growth forecast to 9% in 2024 and 4% in 2025, from 12% and 8% previously.

“Haidilao International Holding Ltd.’s ability to maintain and grow table turnover will be crucial for its revenue expansion. This is as consumers are looking at lower-cost eating options,” S&P Global said.

The report furthers that consumers’ demand for catering in China is showing signs of weakness, after 18 months of strong spending. Dining is seeing lower spending per meal. This is evident with Haidilao’s first-half results too, with average spending per customer declining 5.3% to RMB97.4, which S&P expects to continue.

“We forecast Haidilao's adjusted EBITDA will expand by 3% to Chinese renminbi (RMB) 8.2 billion in 2024, from RMB7.9 billion in 2023. EBITDA margin could dip to about 18% in 2024 and 17% in 2025, from about 19% in 2023. This is because consumers could be more price sensitive and opt for cheaper options amid soft economic conditions in China. Increased staff headcount and better staff compensation could also weigh on margins,” S&P said.

Still, Haidilao could gradually grow its net cash position over the next 12-24 months. The company's operating cash flow could fully fund higher shareholder returns and capital expenditure for expansion.