Taste Gourmet: Great Reopening Play

Encouraging H1 2022 Results 

Taste Gourmet Group Ltd (8371 HK) reported encouraging H1 2022 results. In our insight, Taste Gourmet: Positive Profit Alert for H1 2022 and Taste Gourmet: Conviction Growing As Execution Remains Solid, we highlighted the implied profits from the profit alert and flagged the company would most probably pay a substantial dividend.

H1 2022 saw a growth in net margin to 8%, led by solid revenue growth.  

source: company filings

With the holiday season approaching, we believe that revenues will increase further in Q3 2022, and there could potentially be a step up in margins QoQ.  

source: company filings, internal estimates

We believe that a profit of 17-18 mn HKD is achievable with these revenue levels. 

Cash Pile Growing 

Net cash continues to grow on the balance sheet and now represents around 29.4% of the market capitalization. We believe that the company will expand and payout big dividends.

source: company filings

Dividends Steadily Increasing 

We believe the company will increase its payout ratio in FY22 as cash accumulates on the balance sheet. We believe that this year at the very least, the company will pay 8 cents of dividend ( resulting in an annual yield of 9%). 

source: company filings, internal estimates

Where we believe the stock can trade

With current valuations of 5.8x FY22 PE with 29% of the market capitalization in cash ( implying ex-cash PE of 4x ), we believe that the stock has the potential to trade up to 10x. The catalysts to take the share price to these levels will be :

• Strong 3Q FY22 results.
• Border reopening news or the easing of COVID-related restrictions.
• Success in its venture in China with the WH group.