Cafe de Coral emerges to new dawn, as hidden concerns remain

After nearly two years of profit declines, Hong Kong’s leading fast-food operator began to turn the corner in the second half of its latest fiscal year

Key Takeaways:

• Café de Coral’s profit soared more than 150% in the second half of its latest financial year compared with the first half
• The leading Hong Kong fast-food chain launched a HK$50 million share repurchase program to support its stock

By Lau Chi Hang

Recent dining trends in Hong Kong have taken a toll on traditional local restaurants, as local residents travel with growing frequency to nearby Shenzhen in Mainland China, and people who still choose to eat locally opt for a new generation of affordable “double-dish” meal boxes. Many established eateries and even chains have closed after failing to rise to the challenge, with a growing number of “double-dish” specialists stepping in to take their place.

A classic victim of the onslaught was leading fast-food chain Cafe de Coral Holdings Ltd. (0341.HK), which developed a severe case of indigestion over the past two years. The company’s profit fell 30% in its fiscal year through March 2025, and dropped by an even larger 67.6% to HK$46.7 million ($6 million) in the six months to last September. But just when investors were growing gloomy about its prospects, Café de Coral’s results for its latest fiscal year through March showed reason for hope.

Those results showed Cafe de Coral’s profit fell for a second consecutive year, dropping 29% year-over-year to HK$164 million for the 12 months to March. But a closer look reveals the company’s bottom line showed strong improvement over the course of that 12-month period, suggesting the start of a rebound. Calculations show its profit in the second half of the year approached HK$120 million, representing not only a massive 151% increase from the first half of the year but also up 32% from the year-ago period.

Cafe de Coral also said that it would distribute a dividend of HK$0.40 HK per share for the fiscal year, up 20% year-over-year. The same day, it also unveiled a HK$50 million share repurchase plan, saying the stock’s current price didn’t reflect its true value.

Driven by the string of upbeat news, Cafe de Coral’s stock jumped by nearly 16% on the day the results were announced, while its trading volume soared by more than 20 times.

Network restructuring

The company’s emergence from a dark period is the result of a recent series of needed reforms. First on the list was an overhaul of its store network. In addition to closing low-performing shops, the company began transitioning toward an asset-light and more flexible model, altering store site selection and testing out new formats and combinations. Going forward, the chain’s main focus will be on smaller stores, while it will also increase the number of takeout shops for its casual dining segment.

CEO Piony Leung said the proportion of takeout orders has remained relatively high even after the pandemic, reducing demand for dine-in space. That’s led the company to scale down its area requirements for new stores, downsizing from large spaces of over 3,000 square feet in the past to about 2,000 square feet or less.

At the same time, the company is trying to improve its other cost structures. Among other things, it’s trying to boost its margins by controlling operating expenses, enhancing supply chain efficiency and leveraging synergies between Hong Kong and Mainland China. What’s more, the company has been working to streamline its corporate structure, as well as simplifying processes and standard operating procedures. It’s also trying to better leverage technology, including AI, and promote digital transformation to further boost its margins.

Concurrently, Cafe de Coral has been building up its catering business that provides meals for schools, hospitals and large institutions, providing a more stable income stream during economic fluctuations.

Changing dining market

While Cafe de Coral appears to be turning a corner, it’s still important to point out that Hong Kong’s dining market is no longer what it once was, having undergone significant structural changes. Crossing the border to Shenzhen, especially for weekend daytrips, has undermined the local weekend and holiday dining market. That’s drawing dining-out money away from Hong Kong, meaning Cafe de Coral can only grow by capturing more market share.

Competition from cafeteria-style “double-dish” restaurants catering to a more budget-conscious crowd is also growing fierce, with the number of such restaurants rising rapidly. The challenge from this new generation of low-priced restaurants will cause headaches for Cafe de Coral if it wants to raise its own food prices, which are already higher than those for the typical “double-dish” eatery.

Geopolitical conditions also remain a wild card, as inflation is likely to persist despite signs of moving towards a resolution in the Middle East conflict. Despite that, however, Cafe de Coral could have trouble raising its own prices. CEO Leung said the company will be prudent in its pricing and temporarily refrain from raising prices this fiscal year as diners remain highly price-sensitive.

At the same time, the company could be coming under pressure from Hong Kong’s real estate market, which has finally bottomed out and is picking up after several years of declines. The retail property market began to improve after China eased restrictions on visits to Hong Kong by Mainlanders. Many Mainland restaurant and beverage chains are also building presences in Hong Kong, as property brokerage storefronts also pop up, causing shop rental rates to start rising. One way Cafe de Coral can cope with that is by shrinking its shop spaces.

No new growth curves

Cafe de Coral’s attempts to build other successful dining brands have largely come up empty so far. Its relatively well-known Super Super Congee & Noodles chain recorded a performance decline in the latest fiscal year, as its store count fell by one to 49. Its other brands, The Spaghetti House and Mixian Sense, have also been shrinking over the years. The former was down to just five stores by the end of March, one fewer than a year earlier, while the latter dropped to 16 stores, two fewer than a year earlier.

The company has also tried its hand at operating stores in Mainland China for many years, but without much success. Reflecting that, revenue for its Mainland China business fell 2.3% during its latest fiscal year to 1.46 billion yuan. Revenue from its South China fast-food operation fell by 4%, with same-store sales for that part of the business down 9%.

Overall, Cafe de Coral’s profit has improved, giving some breathing room for its stock to rebound. But its future remains far from certain in a changing dining landscape, making it difficult to imagine the company returning to its former glory days anytime soon.

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