On Thursday, Gourmet Master Co Ltd (2723:TT) experienced a significant shift in stock rating as Morgan Stanley (NYSE:MS) downgraded the company from Overweight to Underweight. The adjustment was accompanied by a substantial decrease in the price target, now set at NT$80, a sharp fall from the previous NT$200
The downgrade was prompted by Gourmet Master's underperformance in its China operations, which could not be compensated by the growth in the United States. The firm expressed concerns about the company's ability to pivot to a US-driven growth narrative, as it faces ongoing economic challenges in the Chinese market.
The US sales for Gourmet Master have shown growth, albeit at a slower pace in the second half of 2023, providing some support to the company's revenue. However, the decline in the Chinese market has been more pronounced. Not only is domestic consumption in China weak, but Gourmet Master has also been reducing its store count in the country. This strategic adjustment is expected to persist due to the current economic conditions in China.
Morgan Stanley highlighted that Gourmet Master has not identified a sustainable growth strategy in China. Since the third quarter of 2018, when the number of the company's stores in China was at its peak, there has been a significant reduction in revenue from the region. This trend has resulted in the loss of one-third of Gourmet Master's Chinese revenue over the 2018-2023 period.
Looking forward, Morgan Stanley forecasts a modest compound annual growth rate (CAGR) for Gourmet Master's group sales between 2024 and 2026, estimating a 5% CAGR overall. This includes an anticipated 12% growth in the US market, contrasted with a mere 1% expected growth in China. These projections reflect the analyst's cautious stance on the company's performance in the near term.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.