Guosen Securities has released a research report stating that Xiaocaiyuan (00999) remains a leading brand in the mass-market casual dining segment with strong operational efficiency. Given its interim dividend payout ratio of 86%, the firm maintains its net profit attributable to shareholders forecasts for 2026-2028 at RMB 6.1/7.0/8.0 billion, implying a PE of approximately 14/12/11x, with an "Outperform" rating.

In the first half of 2026, the company reported revenue of RMB 2.903 billion, up 7.0% year-over-year, while net profit attributable to shareholders fell 24.2% to RMB 289 million. Breaking down the revenue structure, dine-in revenue reached RMB 1.945 billion, up 18.1% year-over-year, while delivery revenue was RMB 945 million, down 10.6% year-over-year. Their respective shares of total revenue were 67.0% and 32.6%, representing a clear shift from the 60.7%/39.0% mix in the same period of 2025, as the strategic focus moves toward dine-in services. During the reporting period, the company's board resolved to pay an interim dividend totaling RMB 250 million, with an interim payout ratio of 86.3%.

Key Points from Guosen Securities are as follows:

H1 2026 Store Expansion Pace Slows Temporarily

As of June 30, 2026, the company's total store count reached 824, with a net addition of 17 stores during the period. This expansion pace moderated compared to the second half of 2025, which saw a net addition of 135 stores. By city tier, the number of stores in first-tier, new first-tier, second-tier, and third-tier and below cities was 142, 225, 106, and 351, respectively, representing year-over-year increases of 33, 33, 26, and 60 stores.

Active Optimization of Delivery Business, Store-Level Sales Still Under Pressure but Turnover Has Improved

In the first half of 2026, same-store sales fell 12.5% year-over-year, primarily due to the company's strategy to optimize its delivery business, focus on the dine-in experience, and proactively lower menu prices to enhance value for money. During this period, the overall dine-in average ticket price fell approximately 12% year-over-year to RMB 50.5. The overall turnover rate was 3.5 times per day, up 12.9% year-over-year, while the same-store turnover rate was 3.3 times per day, up 6.5% year-over-year. The initial effects of price reductions on driving customer traffic are becoming evident.

Rigid Cost Increases Put Pressure on Profit Margins in the Short Term

In the first half of 2026, the company's raw material and consumables cost ratio increased by 2.8 percentage points year-over-year to 32.3%, mainly due to price reductions and increased dine-in meal volumes. The staff cost ratio was 28.5%, up 3.9 percentage points year-over-year, driven by store network expansion and improved salary competitiveness. The marketing expense ratio was 1.5%, down 0.5 percentage points year-over-year, as the company reduced spending on delivery platform promotions and offline marketing activities during the period. The net profit attributable to shareholders margin was 10.0%, down 4.1 percentage points year-over-year, reflecting short-term pressure on profitability during the strategic adjustment phase. On the other hand, the company continues to advance its supply chain construction, with the Ma'anshan central factory commencing operations during the period, leaving room for medium- to long-term cost optimization.

Key Subsequent Tracking Points: Same-Store Sales Recovery and Store Opening Pace

In the first half of the year, the company was in a strategic adjustment period focused on optimizing its delivery structure and offering dine-in price reductions. This led to short-term earnings volatility, but the improvement in the turnover rate has initially validated the effect of attracting customer traffic. The key subsequent tracking points revolve around two variables: the recovery of same-store sales and the pace of store expansion. Considering that the room for further price reductions is relatively limited, the effectiveness of holiday customer acquisition and 88VIP member retention will be crucial in determining the slope of same-store sales recovery and profitability. Furthermore, whether the pace of store openings can pick up will directly impact revenue elasticity. If these positive signals gradually materialize, the valuation center could still move upward.

Risk Disclosures

Food safety concerns, weaker-than-expected same-store sales improvement and store expansion, and intensified competition.