|Summary:||In-depth F&B report: Taiwan F&B chains look to US and China for growth
"Taiwan¡¯s best have the potential to thrive in either market"
SinoPac View: The US F&B market was a US$863bn market in 2018 (4.2% CAGR for 2008-2018), 46x bigger than Taiwan¡¯s. Asian cuisine was the fifth biggest ethic cuisine in the US with a 9.8% market share, and Thai cuisine is one of the most popular among those. Ding Tai Fung and Gourmet Master are two of just a handful of successful Taiwanese F&B chain operators in the US, and one of the keys to their success has been product differentiation. Success has come to 85oC (Gourmet Master¡¯s coffee shop/bakery chain), which serves Taiwanese-style breads and cakes made fresh at its central kitchens, and with Ding Tai Fung, which offers Taiwanese-style xiaolongbao (juicy steamed buns) and maintains consistency and quality through its adherence to 200 standard operating procedures (SOPs).
TTFB also has what it takes to succeed in the US: 1) Product differentiation via its Taiwanese-style Thai cuisine; 2) 30-year track record and use of standardized systems; 3) Large addressable market in the US, where the large number of stable shopping malls creates fertile ground for restaurant chain operators, especially those like TTFB with experience operating restaurants profitably in and around Taiwan¡¯s shopping malls.
Among the three major markets covered in this report, China is the fastest growing, but its hyper competitive. The US is the largest, has relatively healthy malls compared to China¡¯s, and is very receptive to Asian cuisines. We think differentiation is the key to a well-run chain succeeding in the US market.
Buy TTFB (2729 TT), TP of NT$350 (18x 2020F P/E)
Thai Town Cuisine and Very Thai are popular brands in Taiwan; OPM north of 10% is the highest among Taiwan¡¯s top 3 F&B chains
Ample room for growth: 111 stores vs. Wowprime¡¯s 303 (in 2014)
Unique Taiwanese-style Thai food, standardized business procedures, experience operating in malls
If US entry goes well, ROE could exceed 15%, with a yield >4%
Buy Gourmet Master (2723 TT), TP: NT$150 (20x 2020F P/E)
85oC shops have a strong foothold in US
OPM rebounded QoQ in 3Q19; aggressive store opening plan in China for 2020 could give operations a boost.
Valuation: ~16.6x P/E vs. 3-year P/E of 16x-25x