CICC has initiated coverage on Green Tea Group (06831), assigning it an Outperform industry rating. Based on 2024 revenue, Green Tea Group ranks as the leading operator in the Jiang-Zhe cuisine segment within China's casual Chinese dining market. The firm projects the company's earnings per share for 2025-2027 to be RMB 0.74, RMB 0.91, and RMB 1.1, respectively, representing a compound annual growth rate of 22% from 2025 to 2027. The stock currently trades at 7 times the projected 2026 price-to-earnings ratio. The HK$10 price target implies a 2026 P/E of 10 times, suggesting a 47% upside potential. Key potential catalysts include better-than-expected recovery in domestic same-store sales and faster-than-anticipated expansion of new outlets in China. CICC's main viewpoints are outlined below.
Growth in delivery services and store expansion are driving a positive outlook for the company. Firstly, regarding delivery, the proportion of delivery revenue in the first half of 2025 was below the industry average. As the company increases its focus on the delivery business, this revenue stream is expected to grow steadily, contributing to incremental performance. Secondly, in terms of store network growth, as of June 30, 2025, the proportion of Green Tea Group's stores located in tier-two cities and tier-three-and-below cities increased to 25% and 26%, respectively, up from 21% and 20% in 2022. The firm is optimistic about the company's ability to accelerate its penetration into lower-tier cities. Furthermore, as of June 30, 2025, the company operated five restaurants in Hong Kong and plans to open 10 and 13 new restaurants in Hong Kong, Southeast Asia, and North America in 2026 and 2027, respectively, indicating steady progress in its international expansion.
Continuous new menu development helps drive customer traffic, while the company actively optimizes its single-store economic model. Firstly, fusion cuisine, which combines flavors from different regions, naturally attracts diverse consumer groups. It carries lower fashion risk and demonstrates strong resilience. As a leading player in fusion cuisine, Green Tea Group possesses strong research and development capabilities for new dishes, consistently introducing new items to attract customers. It also enhances its brand image by creating comfortable dining environments with Chinese aesthetic appeal. Secondly, the single-store model is being continuously optimized. By reducing the average store area from 450 square meters to 300 square meters, the company has achieved lower rental and staff costs, laying a foundation for accelerated nationwide expansion.
A key difference between the firm's view and general market sentiment revolves around "fashion risk," which remains a core market concern. The company is addressing this by optimizing the single-store model to reduce initial investment, increasing the delivery revenue mix to improve same-store sales, and establishing a new consumer anchor point within the affordable casual dining segment. The firm estimates the delivery mix could rise to 28% by 2026, up from 23% in the first half of 2025. Additionally, the firm believes Green Tea Group offers attractive valuation appeal.
Risks include slower-than-expected store expansion, intensifying industry competition, and potential food safety issues.