Café de Coral (341 HK, HK$4.96, HK$2.88bn) Still not out of the woods

Café de Coral (CDC) reported FY3/26 revenue of HK$8.2bn (-4.5% YoY) and net profit slid 29.5% to HK$160mn; excluding revaluation loss on investment properties, core profit stood at HK$150mn (-30% YoY). OPM contracted further to 2.99% from 3.79%, hitting a multi‑year low, owing to the rigid cost structure.  In response, the Mgt took swift actions in consolidating stores and streamlining costs.  As a result, margins in the 2H26 made a strong comeback after a weak 1H26.     

A final dividend of 30 HK cents has been declared for a total of 40 HK cents for the full year, representing a payout ratio of 141%.

Regional Divergence: Hong Kong Under Pressure, Mainland China Expands Hong Kong remained the primary revenue contributor, delivering HK$6.7bn (‑5% YoY / 82% of total revenue). The core quick‑service restaurants (including Café de Coral, and Super Super Congee & Noodle) saw a 6% revenue decline to HK$4.8bn and posted SSS declines of 6% and 9%, respectively, as subdued consumer sentiment and the normalization of outbound spending by Hong Kong residents continued to divert local foot traffic. The casual dining segment (Spaghetti House, Shanghai Lao Lao, etc.) saw revenue slide 6.4% to HK$0.77bn, reflecting elevated operating pressures. The only bright spot was institutional catering, which grew 1% YoY to HK$1bn, serving as a defensive pillar thanks to its stable client base. In terms of store count, Hong Kong’s total outlets contracted by a net of 6 to 375, with core brands shrinking (Café de Coral ‑6 to 168, Super Super Congee & Noodle ‑1 to 49), while Oliver’s Super Sandwiches expanded modestly by a net 3 to 21.

On the Mainland China front, revenue stood at HK$1.5bn (‑2.3% YoY) with SSS down 9%, pressured by price war among the delivery platforms and heightened consumer price sensitivity. Nevertheless, the company added a net 10 stores in the mainland, bringing its total to 195, while continuing to penetrate lower‑tier cities under a “volume over price” strategy. Hong Kong’s quick‑service and casual dining segments remain under pressure, while institutional catering and Mainland expansion stood out as the sole growth engines.

Net cash of HK$1.55 per share: As at 31 March 2026, CDC had cash and deposits amounted to HK$1.1bn and total borrowings of HK$0.2bn (down HK$80mn YoY), lifting net cash to HK$0.9bn (+52% YoY). In terms of cash flow, net cash generated from operating activities during FY26 was roughly HK$1.5bn and free cash flow reached HK$1.2bn (7x of net profit). CAPEX for the year stood at HK$255mn (approximately 3% of revenue), below industry averages and reflecting a deliberate curtailment of expansionary spending.

HK$50m buy-back plan: CDC also announced a buy-back plan to purchase up to HK$50m worth of shares from the open market.  An estimated 10.08mn shares would be repurchased at current price, representing about 1.74% of the outstanding shares.

Our views: CDC’s FY26 performance underscores persistent pressure on Hong Kong and Mainland China’s catering markets. Even with high brand penetration and consumer stickiness in Hong Kong, the normalization of northbound spending continues to undermine local foot traffic. Intensified industry competition, price wars, and delivery platform subsidies are squeezing margins, leaving little room for price hikes. Sustaining profitability will require further operational fine-tuning. The counter is trading at 24x FY27 P/E and a yield of 7.3%.  (Research Department)