(Idea for 2022 Top Picks?) Tam Jai International (HKEX: 2217) Part 2 (Long Post)

Basic Info

Tam Jai International (HKEX 2217)

Trading Price: 3.12 HKD

Market Cap 4.18B HKD

Half Year Adjusted Earnings: 147 036 000

Implied Full Year PE: 14.2

Company Analysis

Year	Revenue	Outlets	Revenue per Outlet
2019	1,556,173,000	107	14,543,672
2020	1,691,179,000	125	13,529,432
2021	1,794,693,000	147	12,208,795
2022 1H	1,181,494,000	157	7,876,626

In terms of Revenue per Outlet, there has been decline in revenue per outlet since 2019. As the prospectus showed up till 2021 results, it is not surprising that most folks are not convinced with the company's ipo and it has opened underwater upon IPO.

However, following its release of its 2022 1H results, things seem to indicate a turnaround as the company has managed to achieved a revenue per outlet that would exceed 2019 if the half year result holds for the full year.

(Excellent 1H 2022 Results)

(Spending per customer in Hong Kong increased and Increased daily bowls per seat) 

Tam Jai has attributed the improved results to 3 factors

1) Smart Rostering - This is in the aspect of staff training and positioning such that a staff can go from frontline staff to different work stations such as kitchen, takeaway delivery arrangement and cashier to customer serving. As such, everyone can fill up the roles well and this means that there is no need for specific hires e.g a head chief or a manager in charge of waiters etc.

2) Integration of central kitchen and customizations of food choices on delivery platform - This has allowed for cost savings as food is centrally packed and delivered to the various restaurants. This means that the sourcing of food has better quality control. In terms of customizations, this allowed for premium toppings and promotions on delivery platforms that allowed for more average spending per customer and improve profit margin.

3) Increased brand awareness on social media as well as stable covid-19 situation in Hong Kong - This allowed for resumption of dine-in and in larger size which contributed to an increase in willingness to spend outside.

Tam Jai has also planned to grow around 160 outlets (double of their current amount by 2024)

（28 by March 2022, 66 by March 2023, 79 by March 2024)

This represents a potential growth driver. However, we have to beware of its ability to make new outlets profitable and the problem of potentially having too much outlets such that the attrition effect of each outlet occurs.

Management is led by Mr Lau Tat Man, Daren. 

He joined in May 2018 and prior to joining was at Café De Coral as the Managing Director of Quick Service Restaurant Group from March 2015 to April 2018. During his time this is the growth that has been seen in Café De Coral 

Year	Café De Coral Same Store Quick Service Restaurant Growth
2015/16	4%
2016/17	4%
2017/18	3%

After his departure the record is as such

Year	Café De Coral Same Store Quick Service Restaurant Growth
2018/19	Flat
2019/20	-6%
2020/21	-14%

In comparison, from the prospectus the growth of Tam Jai is seen as such

Year	Tam Jai International Same Store Growth
2019/20	+1.3%
2020/21	-9.4%

Of course Café De Coral had more restaurants compared to Tam Jai when doing a comparion of his time there vs at Tam Jai, but i believe he has definitely made a positive impact when he is at the company.

Major Shareholder

Tam Jai International's major shareholder would be Toridoll Holdings Corporation a company listed in Japan under the ticker 3397. It holds around 74.61% in the company. It is a company that operates restaurants and has different brands under its name. A notable one to singapore readers would be monster curry.

Interesting enough, the company is trading at an implied PE of 20 currently  and the company itself is unprofitable from April 2020 to September 2020 while Tam Jai is profitable.

(As seen here profits is negative in 2020 but Tam Jai International is not the reason why it is unprofitable)

Peer Analysis (PE Ratio)

Company Name	Ticker	PE
Tam Jai International	2217	14.2
Fairwood Holdings	52	19.7
Tang Palace	1181	9.8
Café de Coral	341	49.07
Tao Heung	573	Negative as Coy is loss making
Tsui Wah	1314	Negative as Coy is loss making
Ajisen (China)	538	10.25

In terms of PE, Tam Jai International is neither the highest PE nor the lowest PE. However, i will re-address this again below after looking at various analysis below.

Peer Analysis (Revenue and Restaurant)

Company Name	Revenue	Number of Restaurants	Number of Staff
Tam Jai International	1,181,494,000	157	3045
Fairwood Holdings	1,497,207,000	172	5700
Tang Palace	873,657,429	52	3800
Café de Coral	3,823,746,000	482	18443
Tao Heung	1,301,377,000	115	5512
Tsui Wah	522,486,000	83	2600
Ajisen (China)	1,238,209,261	707	9451

Company Name	Revenue per Restaurant	Revenue per Staff	Staff per Restaurant
Tam Jai International	7,525,439	388,011	19
Fairwood Holdings	8,704,692	262,668	33
Tang Palace	16,801,104	229,910	73
Café de Coral	7,933,083	207,328	38
Tao Heung	11,316,322	236,099	48
Tsui Wah	6,295,012	200,956	31
Ajisen (China)	1,751,357	131,014	13

In terms of revenue per restaurant, Tam Jai has finished middle of the pack. Nothing surprising nor alarming. However, it has impressed by revenue per staff as it has low amount of staff yet it has churn out a good revenue per staff. This amount is actually around 40% better then the 2nd place Fairwood Holdings.

This is in-line with the smart rostering that was mentioned earlier. As such, the restaurant is run efficiently.

Peer Analysis (Cost of Staff)

Company Name	Employee Expense	Number of Staff	Cost per Staff
Tam Jai International	358,546,000	3045	117,749
Fairwood Holdings	500,462,000	5700	87,800
Tang Palace	276,641,745	3800	72,800
Café de Coral	1,240,002,000	18443	67,234
Tao Heung	383,943,000	5512	69,655
Tsui Wah	168,814,000	2600	64,928
Ajisen (China)	324,256,740	9451	34,309

Peer Analysis (Cost of Restaurant)

Company Name	Employee Expense	Number of Restaurant	Staff Cost per Restaurant
Tam Jai International	358,546,000	157	2,283,732
Fairwood Holdings	500,462,000	172	2,909,663
Tang Palace	276,641,745	52	5,320,034
Café de Coral	1,240,002,000	482	2,572,618
Tao Heung	383,943,000	115	3,338,635
Tsui Wah	168,814,000	83	2,033,904
Ajisen (China)	324,256,740	707	458,638

While the efficiency is in the staff, they have also paid their staff well. This is an initial worry but after looking at how much each staff cost per restaurant is, i am convinced that they are not overspending. In fact human capital is an important part of Food and Beverage Operation.

In this peer analysis, i feel that Fairwood Holdings and Café de Coral are its closest competitors. Both have over 100 restaurantss and both are big names in Hong Kong. 

As for Tao Heung and Tsui Wah, its poor profitability means that it might not be a good comparison.

Peer Analysis (Restaurant and Staff)

Company Name	Profit per Restaurant	Profit per Staff
Tam Jai International	5,241,707	270,262
Fairwood Holdings	5,795,029	174,868
Tang Palace	11,481,070	157,110
Café de Coral	5,360,465	140,094
Tao Heung	7,977,687	166,444
Tsui Wah	4,261,108	136,028
Ajisen (China)	1,292,719	96,705

After using revenue to minus cost, we can observe that Tam Jai International has done well in generating profit per staff. It has managed to beat companies that has the least staff cost per restaurant (Ajisen), as well as Tang Palace (highest revenue per restaurant).

When compared to the heavyweights of Hong Kong, Fairwood Holdings and Cafe de Coral, Tam Jai International is not the best in generating revenue per restaurant, neither it is the one that pays the staff the least. It does not have the most restaurants either. However, with the lean staff operations, they turned out to be able to generate best profitabiltiy in the form of profit per staff.

Conclusion

Based on current data, Tam Jai has proven that it should deserve a better PE if it executes its growth strategy well and keeps its profit per staff at its current level or a better level. 

Its ability to stay profitable in 2020 even without government grant is laudable. Tam Jai International recorded a adjusted profit margin of 8.6% in 6 Months 2020 (April 2020 to Sept 2020)

This is not seen in Café de Coral, Tao Heung, Tsui Wah, Ajisen and Tang Palace who are all unprofitable in 2020.

For Fairwood Holdings. It is profitable but without the government subsidies it would not be profitable.

The current PE is as such because i believe the market has doubts over their shop opening strategy as well as doubts that it is able to generate future organic growth. After all organic growth has been lacklustre prior to this result release and the 20% comparable restaurant growth that was achieved this year might not be able to be repeated and carried forward to new openings.

The company has been very active on its facebook page in Hong Kong and Singapore as well. In this aspect i believe that it has done very well in attempting to generate more

(Tam Jai Singapore being seen posted on IG as well by foodies)

With cash from IPO, I believe the company is in a position to open more outlets and i feel like it could be a gamble that works out in 2022. The company has indicated in its prospectus presentation slides that it takes 1-5 months for an outlet to break even. 

Hence if the target of 28 more outlets is achieved this financial year (roughly 18% increase in outlets), these should translate to the bottom line latest by 2H FY 2022 (Oct 2022 to March 2023).  A key result release to check on its execution of its expansion strategy.

The key indicators that will give the company a better valuation will be

1) Continued/Sustained Organic Growth in Same Store operations

2) Further cost savings in its lean restaurant operations

3) Good growth and profitability in new outlets as well as overseas expansion

4) Increased brand awareness and transition to increased visits to the restaurants.

The following factors could result in the company spiraling downwards

1) Newly opened outlets erode current stores profitability

2) Expansion take longer to break-even or fail to achieve break-even levels and result in losses

3) Scandals related to food quality happening to the company (although this applies throughout the F&B Industry)

4) Increased central kitchen cost from opening outlets affecting short-term profitability when expansion is too fast

For myself, i would definitely put this stock on the watchlist. The reasons that this stock is not in my portfolio at the time of writing is because of poor market conditions have led to other stocks in the portfolio getting to a low level that i think is somewhat attractive to average and Tam Jai International is currently trading back up above its IPO Price.

Another personal reason would be the number of stocks owned and the stocks to cash proportion which all in all is part of my portfolio planning that i have to deal with myself.

I do like the company.

However, I will not be giving an estimation price target because i believe that this price target will change upon various results release and updates on the company which is why it will never be accurate.