Guosen Securities has published a research report maintaining an "Outperform Market" rating on the chain catering sector. From a comprehensive perspective considering fundamentals, valuations, and policy, leading catering companies with strong operational capabilities have already demonstrated allocation value. While the tea beverage segment faces pressure from a high growth base, leading companies with outstanding operational and innovative capabilities that can ensure stable returns for franchisees are also expected to navigate cycles and increase market share. Based on the assumption of a steady macroeconomic recovery, the report is optimistic about catering leaders with strong same-store sales recovery momentum and tea beverage leaders with excellent single-store payback periods for franchisees by 2026. The main views of Guosen Securities are as follows:
Catering consumption trends 1) Weak demand recovery and supply contraction, leading companies seek growth through diverse measures: From January to November 2025, national catering revenue accumulated a year-on-year increase of 3.3%, slower than the 4.1% growth in merchandise retail, continuing a weak recovery. Due to pressure on the demand side, supply marginally contracted in most catering segments in 2025, while leading companies relied on strategies such as expanding product lines and leveraging food delivery channels to generate revenue. 2) Structural growth in online channels: The battle in instant retail in 2025 accelerated the penetration rate of consumption, with milk tea, coffee, and fast-food stages benefiting significantly. However, as platform competition evolved, brands adopted a more dialectical and rational attitude towards food delivery. 3) Reconstructing brand-building approaches, highlighting member value: In the current consumption environment, the approach to brand building has shifted from creating single hit products to seeking efficiency from the supply chain. Operations are also placing greater emphasis on building membership systems and converting private traffic.
Market review: Year-to-date, leaders with strong same-store sales growth and superior expansion logic have led the sector's gains. 1) Coffee and tea beverage leaders Gu Ming/Mixue Group/Luckin Coffee led the sector's gains, rising 185.8%/45.4%/39.2% respectively. The platform food delivery war significantly increased consumption frequency, with high year-on-year growth in franchisees' single-store revenue and high enthusiasm for franchisee store expansion driving stock price increases. 2) Catering leaders showed divergent performance. Companies with stronger same-store data and faster store opening speeds, such as Guoquan, which saw significant efficiency improvements, led with a 98% gain. Guangzhou Restaurant Group/Xiaocaiyuan/Green Tea Group rose 11.8%/9.2%/8.8% respectively, performing averagely, while other brands faced stock price pressure.
Sub-sector analysis and outlook 1) Freshly made tea beverages: Benefiting from the current round of food delivery subsidy wars, the revenue and adjusted net profit of 7 listed tea beverage leaders increased by 32.5%/58.0% year-on-year in H1 2025, accelerating further compared to 2024 (+22.5%/+15.0%). As food delivery subsidies gradually phase out, the market is observing how tea beverage leaders will respond to base pressure in Q2/Q3 2026. Expanding new product lines, such as the mutual penetration of milk tea and coffee, continuous product innovation, and building new brand curves are the main response strategies. Coupled with enhanced brand recognition post-listing and a series of measures to improve franchisee returns, the trend of concentration towards the leading players is expected to continue. 2) Catering: Unlike the coffee and tea beverage segment, which benefited from the food delivery subsidy war, the revenue of listed catering leaders increased by only 1.5% year-on-year in H1 2025, slower than the catering industry's growth rate during the same period (+4.3%). This was mainly due to multiple factors including intense price competition, policy disruptions in high-end catering, and public opinion on pre-made dishes. However, the 7.5% year-on-year increase in net profit attributable to shareholders in H1 2025 indicates improving operational efficiency. Considering that catering leaders face a relatively low operating base in 2026, coupled with a rebound in CPI data, potential service policy boosts, and continuous innovation initiatives from leading companies, the sector could potentially see a bottoming rebound under a low base if revenue delivers more positive surprises, aided by operating leverage.
Updated thoughts on the catering investment framework (2025): Valuation shifts for catering and tea beverage leaders stem from changes in earnings growth expectations. 1) Same-store sales growth serves as the valuation anchor, reflecting both the profitability of existing stores and influencing the future pace of store expansion. 2) Store growth rate acts as a valuation amplifier; during an uptrend, if a brand accelerates store expansion, valuation/earnings may experience a double boost. During a same-store sales downturn, aggressive store expansion could lead to valuation corrections. 3) New product incubation provides new momentum but requires supporting incentive systems and balancing the interests of new and old brand teams. 4) External factors: The increased concentration of leading players during the pandemic and the development opportunities for tea beverage leaders under the food delivery war can both bring valuation enhancement investment opportunities. 5) Valuation premium/discount: Historically, high PE premiums for leaders, such as dynamic PEs reaching 100x, originated from business model certainty/growth, with the degree of premium related to market potential, competitive landscape, and corporate governance.
Investment recommendations: Key recommendations include Haidilao, Yum China, Guoquan, Gu Ming, Mixue Group, and Xiaocaiyuan. If subsequent consumer policies for the service industry are introduced, leading to sustained recovery in consumer confidence, the chain catering sector possesses strong earnings and stock price elasticity during a pro-cyclical upturn. It is also recommended to pay attention to Tongqinglou, Green Tea Group, DPC Dash Ltd., Guangzhou Restaurant Group, Cha Ba Dao, Auntea Jenny, and Jiujiu Group. Furthermore, from a medium-term perspective, the firm continues to be optimistic about the prospects of the local life service leader Meituan-W in consolidating its competitive advantages under the new competitive landscape.
Risk warnings: Systemic risks such as macroeconomic factors or pandemics; policy risks; acquisitions falling short of expectations; risks of major shareholder减持; changes in market fund preferences.
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