Guosen Securities has issued a research report forecasting that XIAO NOODLES (02408) will achieve adjusted net profits attributable to shareholders of 1.35 billion yuan, 2.35 billion yuan, and 3.51 billion yuan for the years 2025 to 2027, representing year-on-year growth of 111%, 74%, and 49%, respectively. Considering that leading chain restaurants typically command valuation premiums during high-growth phases, and factoring in the company's successful validation of a new store model and its current period of rapid store expansion, it is expected to enjoy a moderate valuation premium. Using both absolute and relative valuation methods, the firm calculates a reasonable share price range of HK$7.8 to HK$8.2 for the company over the next year, implying an upside of 34% to 41% from the latest closing price. This marks the initiation of coverage with an "Outperform" rating.
The main points from Guosen Securities are as follows:
As the first publicly listed Chinese noodle restaurant chain, XIAO NOODLES is a pioneer in standardized operations. Founder Song Qi established the company in Guangzhou in 2014. It has gradually developed a diverse product portfolio centered around classic Chongqing noodles, complemented by rice dishes, snacks, and beverages. The mainstream combo meal price is approximately 20-25 yuan, offering clear value-for-money advantages. After several rounds of financing, the company listed on the Hong Kong Stock Exchange in December 2025, becoming the first listed entity in the Chinese noodle restaurant sector. The controlling shareholders collectively hold a 45.98% stake. Founder Song Qi's prior experience with a leading Western fast-food chain has laid a solid foundation for the company's standardized operational system.
In 2024, the company reported revenue of 11.54 billion yuan, a increase of 44.2% year-on-year. Revenue from directly operated stores accounted for 86.7%, while franchising services contributed 13.2%, indicating a business model primarily based on direct operations with franchising as a supplement. The adjusted net profit was 640 million yuan, up 36.0% year-on-year. A positive profit alert indicates the company expects an adjusted net profit of approximately 1.25 to 1.4 billion yuan for 2025, surging 95.6% to 119.1% year-on-year, with the number of stores reaching 503, a 39.7% increase.
The Chinese noodle restaurant market exceeds 300 billion yuan in size, with the Sichuan-Chongqing flavor segment showing strong growth potential. The industry has evolved through three stages: a period of regional fragmentation (pre-2010), a phase of chain emergence and capital infusion (2010-2021), and a current period of industry consolidation and differentiation (2022-present). High-quality leaders with standardized and digital operational capabilities are expected to accelerate integration and strengthen their market position. According to data from Frost & Sullivan, the Chinese noodle restaurant market is projected to reach 326 billion yuan by 2025, with a CAGR of approximately 11.0% from 2025 to 2029. Within this market, Sichuan-Chongqing flavor noodle restaurants accounted for 25.0% of the total market in 2024 and are expected to grow at a higher CAGR of around 13.2% from 2025 to 2029. In terms of competitive landscape, the top five brands held a combined GMV market share of about 2.9% in 2024. XIAO NOODLES, positioned in the Sichuan-Chongqing noodle segment, currently ranks fourth in the industry.
Key growth drivers are seen in two areas: first, improvements in unit economics (UE), and second, store network expansion. 1) Improvement in Single-Store UE: The company's new street-front store model for 2025, which employs a volume-driven pricing strategy, has been successfully validated, leading to marginal improvements in single-store profitability. Coupled with potential CPI increases in 2026, same-store GMV growth is forecasted at +0.8%, +1.0%, and +1.2% for 2025 to 2027, respectively. 2) Store Expansion: Leveraging the existing model and franchising, the store count is projected to reach 1,428 to 1,618 units over a five-year horizon. Given the successful validation of the new UE model in 2025, the net addition of directly operated and franchised stores is estimated at 140, 190, and 216 for 2025 to 2027, respectively, with franchised stores comprising about 15% of the total. Expansion pace is expected to accelerate annually. Based on the prospectus, the store count is anticipated to surpass 1,000 by 2028.
Risk factors include same-store sales growth falling short of expectations, slower-than-expected store expansion, shareholding reductions by major shareholders, food safety issues, franchisee attrition, macroeconomic downturn, and potential setbacks in overseas expansion.
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