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FanChicago
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Several years investment experience in China/HK/US
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  • Why CCSC will fall further

    As someone who had several years experience in US listed Chinese ADRs, the current situation of CCSC make me remind the IPO of NPD.

    Both driven by aggressive VC, one is GS, one is SIG/Sequoia,
    Both experience too rapid growth which the company can not afford.
    Both tell a very good story during IPO, make the capital market to welcome it with such high valuation.

    The CCSC's growth is too fast which beyond the company's ability to handle, its brand awareness outside chongqing/sichuan is too low. Open new stores need time to ramp up. The operating margin will also be dragged down.

    I suggest visit dianping.com to see the review on chinese restaurant, the company has very good feedbacks actually in shanghai. But to reach an economical scale in a city, the company still need long time to achieve that.

    By single store sales vs. Little sheep, Cafe De coral and Ajisen, my valuation of this stock is around 18-22.

    Another thing concerned me is its rapid growth, the management's quality is far from to handle the rapid expansion.  We can visit Baidu Tieba of the company to see its employees' review and comments. (NPD's employee review were also not good during the IPO). Most of the management teams and middle level managers are from adjacent area of Sichuan with not very high education level. To expand to some certain level, the problem will explode. Like little sheep and Ajisen in the past. From my past experience, I think before 300 stores, there will be a big problem.

    The company already increased several times of its product price and may be very hard to do this in the near future. Otherwise, it may lose the customer who are quite sensitive. But we all know the past October and November, China experienced rapid price increasing in many things such as vegetables, meat, sugar and others.  I also worry the operating margin will get worse in 4Q.

    This is a good company, if we give it more time and patience. But the ipo driven rapid growth will be like YaMiaoZhuZhang, will may hurt this company soon.


     



    Disclosure: No positions now.
    Tags: CCSC
    Nov 22 3:12 PM | Link | Comment!
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