Founder Securities released a research report stating that XIAO NOODLES (02408) is a leading noodle restaurant chain specializing in Sichuan-Chongqing flavors, with a menu focused on this regional cuisine and a primary emphasis on value-for-money. In the short term, the focus is on the company's same-store sales recovery and the pace of store expansion. In the medium to long term, the company still has significant room for store openings in both domestic and international markets. The brokerage forecasts the company's adjusted net profit for 2025-2027 to be RMB 140 million, RMB 240 million, and RMB 370 million, respectively. Initiating coverage with a "Recommended" rating. The main points from Founder Securities are as follows:

As the leading brand in Sichuan-Chongqing style noodle restaurants, the company employs a flexible expansion strategy combining company-owned and franchised stores. It is a Chinese餐饮 chain brand whose flagship product is the Chongqing noodle series; its product range has now expanded to include various spicy and non-spicy dishes, covering noodles, rice, snacks, and beverages. The company opened its first store in Guangzhou in 2014 and subsequently received multiple rounds of financing. Between 2017 and 2020, it opened its first stores in cities like Shenzhen and Beijing, and launched its first franchised store in 2019. The total number of stores surpassed 100 in 2021, after which expansion accelerated through the dual model of company-owned and franchised stores. From 2021 to 2024, the store count grew from 133 to 360. In 2024, the company opened its first restaurant in Hong Kong. As of June 30, 2025, the company's restaurant portfolio included 410 restaurants across 22 cities in mainland China and 7 restaurants in the Hong Kong Special Administrative Region.

The Chinese noodle restaurant market is vast yet highly fragmented, with the top five players (CR5) holding less than 5% market share; XIAO NOODLES has experienced rapid development in recent years. The total gross merchandise volume (GMV) of the Chinese noodle restaurant market is expected to reach RMB 510 billion by 2029, with a projected compound annual growth rate (CAGR) of 10.9% from 2025 to 2029. The market is characterized by a high degree of fragmentation; in 2024, the combined GMV of the top five enterprises accounted for only 2.9% of the total market share. Among the top ten Chinese noodle restaurant chains, XIAO NOODLES achieved the fastest CAGR in GMV from 2022 to 2024.

The product offerings balance diversity and affordability, while stores boast a high degree of standardization and strong replicability. The menu primarily features Sichuan-Chongqing flavors but also includes non-spicy options for customers. Typically, each restaurant offers 30 to 40 SKUs. As of the end of June 2025, the price range for main courses was between RMB 12 and RMB 34. Stores are predominantly located in southeastern China, with Guangdong province accounting for over 60% of the total. The company-owned model is dominant, representing approximately 80% of stores. The high standardization and replicability of the stores are evident; currently, the break-even point and investment payback period for company-owned restaurants are approximately 2 months and 14.9 months, respectively.

Use of Proceeds & Store Opening Plan. According to the company's prospectus, the raised funds are planned for store expansion, digital upgrades, brand building, and strategic investments in the upstream supply chain. The company plans to open approximately 150 to 180, 170 to 200, and 200 to 230 new company-owned and franchised restaurants in 2026, 2027, and 2028, respectively, totaling approximately 520 to 610 new stores (As of June 30, 2025, the total number of stores was 417).

Risk warnings include store sales and profitability falling short of expectations, store expansion pace being slower than anticipated, and intensifying industry competition.