Although M’s 3Q22 earnings were softer than we had expected, we forecast YoY and QoQ profit growth for 4Q22. Even after assuming higher costs, heavy festive season traffic and cost efficiencies should keep margins steady. BUY!
3Q22 profit declined QoQ on seasonality
We see no changes in M’s fundamentals, even though its 3Q22 result was weaker than our estimate and the consensus. The two key reasons were seasonality (the third-quarter normally weakens QoQ) and higher ingredient cost pressures. The prices of ducklings and sea bass have increased by 10-30% since June 2022, while M raised its menu sales prices by 5% in Jan 2022 and by another 5% in June 2022. GM was stable at 65.6% in 1Q22, 65.3% in 2Q22, and 65.2% in 3Q22; we expect GM to remain steady in 4Q22.