QIC Inside Investor Relations Volume 40: Is the Pandemic the Only Factor Affecting the Share Price of the Restaurant Industry?
According to the Bureau of Statistics of the Ministry of Economic Affairs, the turnover of Taiwan's restaurant industry has decreased by 4.2% in 2020 and over 6.4% in 2021. The new COVID pandemic has made Taiwan's restaurant industry one of the industries that suffered the most. At the same time, restaurant companies abroad, which are also facing the impact of the pandemic, are more actively communicating with the capital market by disclosing more diverse information. In contrast, few companies in Taiwan are attempting this. In this episode of Inside Investor Relations, we will guide you through the observation of 8 restaurant-related stocks at home and abroad and explore the possible reasons behind the differences in share price performance by analyzing the operating performance and information disclosure of domestic and foreign restaurant companies.
The underperformance of Taiwan's restaurant stock share price compared to foreign countries after the pandemic
First, we analyze the stock price performance of domestic and foreign restaurant stocks from the outbreak of the COVID pandemic in 2020 to the end of May 2022. We can discover a significant decline from March to April of 2020. However, after 2021, the foreign restaurant industry stocks have rebounded sharply in terms of the share price. When compared to the beginning of 2020, the share price has risen by about 53%, and even doubled the growth rate. In contrast, while the share price of Taiwan's restaurant stocks has risen by about 25%, we’ve seen a retracement of about 18% recently.
All in all, besides the impact timing of the pandemic, we believe that operating performance may also be one of the factors affecting stock price performance. By observing the 16 domestic and foreign restaurant stocks we selected, we found that the average annual revenue growth rates of 8 restaurant companies in 2020 are about 3.00% and -1.03%, respectively, in 2021 it is about 0.41% and 18.69%. It shows that the recovery of foreign restaurant stocks is stronger than that of domestic stocks. After a careful analysis, we believe that the reason for the difference may lie in the differences in the business models. The business models of foreign restaurant stocks are mostly fast-food restaurants (QSR) and fast-casual restaurants (FAST CASUAL), while domestic ones are mostly tableside service restaurants (FULL-SERVICE). Therefore, foreign restaurant companies have an advantage over domestic companies when implementing a transformation and providing take-out services after the impact of the pandemic. In addition, foreign restaurant companies are also very quick to respond regarding the outbreak of the pandemic. For example, companies such as Chipotle and Texas Roadhouse began to disclose the revenue contribution information related to delivery in the third quarter of 2020, which is enough to show how quickly they responded.
Taiwan's restaurant stocks still underperforming even with an extended time
However, after further analysis, we found that even with the extension of the time, the share price performance of Taiwanese restaurant stocks is still underperforming in comparison to foreign countries. For example, when looking at the five-year period of stock price performance from the end of May 2017 to the end of May 2022, the performance of Taiwan restaurant stocks mostly showed negative growth. The stock growth of TTFB (2729 TT) and AN-SHIN FOOD SERVICES (1259 TT) were -17.51% and -24.07% respectively, Wowprime (2727 TT) was about -44.33%, and Gourmet Master (2723 TT) reached an insanely high -72.10%. However, the foreign counterparts are on the contrary. In the past five years, the stock price performance has mostly been growth. The stock price of MCDONALD'S (MCD) and DOMINOS PIZZA (DPZ) rose by about 67.99% and 75.50% respectively. CHIPOTLE (CMG) and WINGSTOP (WING) even achieved growth as high as 194.81% and 173.02%. After a closer look, we believe that besides the impact of the business model and performance, there is another decisive factor, that being, the difference in the degree of information disclosure.
Insufficient disclosure of information on domestic restaurant stocks, resulting in unstable stock prices under the environmental impact
We can first divide the differences in information disclosure into two levels, one is the degree of information disclosure, and the other is the frequency of information disclosure. First, after comparing the degree of information disclosure of domestic and foreign restaurant stocks, we found that before the pandemic, the foreign restaurant industry would disclose many financial data that are crucial to investors. For example, restaurant stocks are very important, such as SAME-STORE SALES GROWTH (abbreviated as SSSG, or COMPARABLE STORE SALES GROWTH, abbreviated as COMPS), average revenue per store (AVG. PER STORE DAILY SALES), average mealtime sales (AVG. DAY PART SALES), etc. After the outbreak of the new COVID-19 pandemic in Europe and the United States in March 2020, countermeasures such as social distancing and city lock-down have brought huge negative impacts to the restaurant industry. Foreign restaurant stocks began to provide more detailed information for the investors, such as Chipotle announcing the rapid growth of online sales revenue due to the pandemic, Texas Roadhouse began to disclose the monthly SSSG and the proportion of weekly takeout revenue, etc. The transparency of information disclosure can strengthen investors' confidence in the company's operating performance. Therefore, compared with domestic peers, the stock price trend of foreign restaurant companies showed a long-term stable growth.
On the other hand, in Taiwan, before or after the COVID pandemic, press releases mostly announce qualitative information, such as what operational changes the company has implemented this quarter and what marketing activities will be held. However, it is not clear how much revenue growth these measures will bring. Financial statements also only disclose quarterly revenue, gross profit, and net profit. Very few restaurant stocks disclose financial information that investors value such as SSSG and more. The ambiguous information makes it difficult for investors to grasp the latest company operating situation, which can cause the stock price to be more likely to dip when facing a negative impact. In the long run, it also results in the decline of the investor’s confidence and a drop in stock price.
The second level is the frequency of information disclosure. If the frequency of information updates is lackluster, it will be difficult for investors to understand the company's financial and operating conditions in real-time, which may lead to a decline in the willingness to invest and greater stock price volatility under impact. For example, some foreign restaurant stocks such as YUM will announce the revenue growth rate of their brands in various regions every quarter, while domestic restaurant stocks usually only disclose such detailed data in their annual reports. Quarterly reports will usually only release the disclosure of financial statement information.
Conclusion
When compared with the foreign restaurant industry, it shows that the underperformance of stock price of domestic restaurant stocks isn’t only affected by the pandemic, but also the degree and frequency of information disclosure. From the foreign shareholder proportion of domestic restaurant stocks, we found that even with the widespread of the vaccine and the ban lifted on dining in, foreign investors shareholdings are still lower than before the pandemic. If we can increase the level of information disclosure and publish important information that investors care about more frequently, we will be able to enhance the confidence of foreign investors in the company's operations, and further increase their shareholding proportion, then the performance of the company’s stock will improve.
Whether it’s before or after the pandemic, foreign restaurant companies have always strived to improve information disclosure and continuously communicate with investors. In contrast, Taiwanese restaurant companies mostly focused on improving operational performance and ignored the importance of information transparency, even after the outbreak. If Taiwanese restaurant companies are unwilling to disclose more information, how can they attract the attention of investors in the capital market and prove to them that they are the company worth investing in?
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