China Restaurant Operators Dive as Covid-19 Spreads, Cities Lock Down

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By Yifan Wang
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Shares of Chinese restaurant operators extended steep losses in late Monday trade as the spread of Covid-19 and tighter movement curbs stoke investor concerns toward the sector.

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Haidilao International Holding Ltd. slumped as much as 11%, while Jiumaojiu International Holdings Ltd. fell by up to 12%. Xiabuxiabu Catering Management (China) Holdings Co. plunged 8.4%.

The selloff comes as China continues to post record-high infection numbers. New cases have repeatedly hit new peaks since last Monday’s daily tally topped the measure from the initial outbreak in Wuhan in early 2020, making the current resurgence the country’s worst outbreak in more than two years.

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Shanghai remains under a sweeping lockdown, while several other major cities tightened movement curbs over the weekend. The southern business hub of Guangzhou has asked residents not to leave the city from Monday onward for non-urgent matters, and said departing travelers need to present a negative result from a Covid-19 test taken within 48 hours. The central city of Wuhan has also started requesting negative test results for public transportation. These cities, with large populations and geographic sizes, contribute a significant portion of the three restaurant operators’ total sales.

“We suggest a wait-and-see approach as uncertainty over China’s outbreak continues,” Bocom International analyst Edward Lui said in a research note on Monday about China’s consumer sector.

However, undermanding valuations lead many analysts to keep their buy calls on the sector’s major stocks. Mr. Lui has a buy call on Jiumaojiu, while Daiwa analysts Adrian Chan and Sybil Hu rate Xiabuxiabu as buy. Late last month, Citi analyst Xiaopo Wei upgraded Haidilao to buy from neutral.

“We believe its current valuation has well reflected market fears about its earnings uncertainty,” the Citi analyst said in the research note.

Write to Yifan Wang at [email protected]

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Credit: www.marketwatch.com /

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