Industrial Securities Co.,Ltd. has issued a research report maintaining an 'Add' rating on XIAOCAIYUAN (00999). The brokerage forecasts the company's operating revenue for 2026/2027 to be RMB 5.456 billion / RMB 5.625 billion, representing year-on-year growth of 2.1% / 3.1%. Net profit is projected at RMB 580 million / RMB 600 million, indicating a year-on-year decrease of 18.8% / an increase of 3.3% respectively. Based on the closing price as of July 13, 2026, the corresponding price-to-earnings ratios for 2026/2027 are 13x and 12x, with dividend yields of 5.5% and 5.7%. The firm views 2026 as an adjustment year for the company, involving proactive menu price adjustments, dynamic management of store expansion pace, and stabilizing the core business while optimizing its internal structure. The broker anticipates a short-term slowdown in growth to pave the way for more stable and healthy development under a longer-term strategy.

Key Analyst Perspectives

The report highlights pressure on same-store sales performance in the first half of 2026. The analyst believes the company faces downward pressure on same-store efficiency, with both average customer spending and foot traffic under strain. Regarding average spending per customer, the pressure stems from two factors: first, the company's proactive reduction of prices on some menu items in December 2025 to boost volume, and second, the introduction of an 88VIP paid membership program. This program, with an annual fee of RMB 88, offers benefits including an 88% discount on dine-in meals, vouchers, a weekly half-price weekday dish, and free rice and tissues for the year. The brokerage expects this to have a sustained impact on the average customer spend in 2026. As of the end of 2025, the average spend was RMB 56.1, and the analyst forecasts a year-on-year decline for both H1 2026 and the full year 2026. Concerning foot traffic, performance in H1 2026 was weaker than the brokerage's initial expectations due to macroeconomic factors. Consequently, same-store sales are expected to be under pressure in H1 2026, dragging down the full-year figure.

Profit Margins Normalizing

The company's net profit margin reached 13.4% for the 2025 fiscal year, an increase of 2.2 percentage points year-on-year, marking a five-year high and placing it at a relatively elevated level within the industry. The report suggests that as the pace of new store openings moderates and same-store sales decline, profit margins are expected to correspondingly retreat, gradually returning to a more normalized level.

Store Expansion Pace to Pick Up

As of the end of 2025, the total number of restaurants stood at 807. The pace of new store openings accelerated in the second half of 2025 compared to the first half, and the brokerage expects a similar acceleration in the latter half of 2026. By the end of H1 2026, the store count had reached 828 (source: Zhaimen Canyan), a net increase of 21 from the end of 2025. The firm projects the total number of stores to reach 907 by the end of 2026.

Industry-Leading Dividend Payout

At the end of 2025, the company declared a final dividend of RMB 0.2125 per share, bringing the total annual dividend per share to RMB 0.4244. The total annual dividend payout amounted to RMB 500 million, representing 70% of the net profit attributable to the parent company. Assuming a maintained payout ratio of 70% for 2026, the dividend yield based on the share price as of July 13, 2026, is projected at 5.5%.

Risk Factors Identified

The report outlines several risk factors: 1) Food safety issues; 2) Significant cost increases; 3) Intensifying competition; 4) Same-store performance falling short of expectations.