UBS maintains its Buy rating on Haidilao International but lowers its target price to HK$17.16

Overview

This is UBS's 1H26 earnings preview for Haidilao International (06862.HK). The report believes group revenue growth can still be driven by diversified businesses such as delivery and other restaurant brands, but main-brand Haidilao revenue has largely stagnated. A slight decline in average spending per customer, net store closures, and rising raw material costs are pressuring margins. UBS maintains its Buy rating but cuts its DCF target price from HK$20.00 to HK$17.16.

Core views

The core view is that growth quality is diverging: group revenue can still grow 9% year on year, but this is almost entirely driven by the expansion of delivery and multi-brand businesses; profit is dragged down by a higher proportion of low-margin businesses, rising raw material costs, and lower gains from converting company-owned stores to franchises. UBS forecasts operating profit to grow 6% year on year and net profit 4% in 1H26, materially below Visible Alpha's 12% consensus estimate but broadly in line with the more cautious expectations of buy-side investors.

Analysis framework

The report uses an earnings preview approach combining a top-down view with segment-level analysis: it first assesses group revenue growth, then breaks down the contributions from the main brand, delivery, other restaurant brands, and the Pomegranate Project; it subsequently evaluates the impact of changes in gross margin, operating margin, and one-off franchise-conversion gains on net profit; finally, it updates the target price through DCF valuation and maintains the rating based on the 12-month forecast return.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  UBS uses the DCF method to derive Haidilao's target price and cuts it from HK$20.00 to HK$17.16 after lowering its 2026-2028 net profit forecasts by 4%-7%, reducing margin assumptions, and slowing medium-term revenue growth assumptions.

• Earnings forecastsSegment revenue and margin breakdown

  Breaking down growth sources by main brand, delivery, and other restaurant brands

  The report attributes group growth to broadly flat main-brand revenue, high delivery growth, and doubled revenue from other restaurant brands, and further assesses the dilution of group gross and operating margins caused by the expansion of low-margin businesses.

• Short-term factor assessmentQuantitative Research Review

  Survey of short-term industry, regulatory, operating trends, and earnings surprises

  In UBS's disclosed short-term quantitative assessment, industry structure, the regulatory environment, recent changes in stock fundamentals, EPS revisions relative to consensus, and earnings risks relative to its own forecasts all scored 3, indicating broadly neutral conditions or no significant change.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Haidilao International 06862.HK

  Core covered stock

  Strengths

  Strong brand foundation, attractive cash flow and dividend returns, with diversified businesses driving group revenue growth.

  Weaknesses

  Main-brand revenue is broadly stagnant; declining average spending per customer and net store closures constrain growth, while expansion of low-margin businesses dilutes group margins.

  Comparison

  UBS forecasts 1H26 net profit growth of 4%, below Visible Alpha's 12% consensus estimate but close to more cautious buy-side expectations.

  Risks

  Rising raw material and labor costs, cannibalization from store expansion, intensifying competition, poor adaptation to delivery and takeaway, and food safety incidents.

• Delivery business

  Growth-contributing business

  Strengths

  Revenue is expected to grow 130% year on year, significantly driving group revenue.

  Weaknesses

  Operating margin is expected to be in the high single digits, below that of the mature main brand, diluting group margins.

  Comparison

  Compared with the main brand, delivery is growing faster but has weaker profitability.

  Risks

  If unit economics do not improve after scaling, the business may continue to depress group margins.

• Other restaurant brands

  Multi-brand expansion business

  Strengths

  Revenue is expected to double year on year, making it an important component of the group's diversification strategy.

  Weaknesses

  UBS expects the businesses to remain loss-making, with limited profit contribution.

  Comparison

  Compared with the main brand, other brands have higher growth elasticity but lower maturity and profit stability.

  Risks

  Store portfolio adjustments, unclear brand positioning, and overly rapid expansion leading to internal competition or widening losses.

Key data

• 1H26 group revenue forecast+9% YoYGrowth is expected to be entirely driven by diversified businesses, with main-brand revenue broadly flat.
• Delivery revenue forecast+130% YoYThe delivery business is one of the main incremental contributors to group revenue growth.
• Other restaurant brands revenue forecast+100% YoYRevenue from other restaurant brands is expected to double year on year, though the businesses may still be loss-making.
• 1H26 group gross margin change-2.2ppt YoYMainly due to rising raw material costs and a higher contribution from low-margin delivery and multi-brand businesses.
• 1H26 operating profit forecast+6% YoYOperating profit growth is below revenue growth, with operating margin expected to decline by approximately 0.3 percentage points year on year.
• 1H26 net profit forecast+4% YoYBelow operating profit growth, mainly due to a year-on-year decline in gains from converting company-owned stores to franchises.
• Visible Alpha consensus net profit growth+12% YoYUBS's forecast is materially below consensus but is considered closer to the cautious expectations of buy-side investors.
• Number of company-owned stores converted to franchises6 stores YTD in 1H26; more than 20 stores in 1H25Lower franchise-conversion gains are reducing non-recurring income and net profit growth.
• Target priceHK$17.16The previous target price was HK$20.00.
• Current priceHK$11.75Price date: July 21, 2026.
• Forecast stock return52.5%Includes 46.0% forecast price upside and a 6.5% forecast dividend yield.

Impact & implications

For investment implications, Haidilao still offers a relatively high 12-month forecast return, leading UBS to maintain its Buy rating. However, earnings quality and valuation assumptions have been revised downward, indicating that investors need to monitor whether diversified businesses can improve margins while sustaining growth. If delivery and multi-brand businesses remain low-margin or loss-making, group revenue growth may not translate sufficiently into net profit growth.

Risks

• A deterioration in the macroeconomy could suppress consumer spending.
• Rising commodity and labor costs could continue to erode gross margins.
• Food safety incidents could affect the brand and customer traffic.
• Aggressive expansion could lead to cannibalization among restaurants.
• Competition from local hotpot restaurants and hotpot ingredient supermarkets is intensifying.
• If the company cannot adapt to delivery and takeaway businesses, growth and margins could suffer.
• Rapid expansion of low-margin delivery and multi-brand businesses could continue to dilute group profitability.

What to watch

• Whether actual 1H26 revenue growth is close to UBS's 9% forecast.
• Changes in main-brand table turnover, average spending per customer, and net store openings and closures.
• Whether strong delivery revenue growth can generate operating leverage rather than further dilute margins.
• Whether other restaurant brands remain loss-making and progress in adjusting the Pomegranate Project store portfolio.
• The number of company-owned stores converted to franchises and changes in related one-off gains.
• Whether 2026-2028 net profit forecasts are revised downward further.
• Whether the market continues to accept the high-dividend and high-forecast-return thesis after the target price cut.