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Shares of Chinese catering companies tracked by Goldman Sachs have contracted up to 47% since 31 March, underperforming the MSCI China Index’s about 7% decline over the same period, due to the low season in April and lackluster performance during the holiday season in May and June, Goldman Sachs said in a note.
Factoring in China’s weakening macroeconomic outlook and limited effect from policy stimulus, the bank turned more conservative on the recovery forecasts for the sector, expecting a modest rebound to 85% and 90% of pre-COVID levels for the second half of 2024 and 2024, respectively.
The forecast for the catering sector’s earnings in 2023-25 was lowered by 2% – 39%, with the target prices reduced to reflect the sputtering growth amid diminishing visibility, it said.
Looking ahead, the execution on high-quality expansion will become increasingly vital from the second half onwards, which would render the valuations of quality shares more appealing. Therefore, it maintained the Buy rating on Yum China and Jiumaojiu.
The ratings for Haidilao International and Nayuki were kept at Sell, as the two firms are expected to be affected by the heightened uncertainties from industry competition and potential shifts in business models, it said.