06 Tsui Wah Sum Zero Write Up Sid Choraria E871a8be60 95f63f1b4d

Tsui Wah (SEHK: 1314)
Hong Kong Milk Tea

Style
Flat Rice Noodles with Fish
Cakes and Fish Soup
Sizzling King Prawns with
Fried Noodles
Crispy Bun with Sweet
Condensed Milk
Jumbo Frankfurter Hot
Dog

Efficient, Exquisite and Desirable

Author: Siddharth (Sid) Choraria

**
Email: sid.choraria@gmail.com

(** Note: Author pictured above in June 2014 on a Tsui Wah delivery scooteradmittedly, the author is a loyal and captive customer)

Key Statistics (as of June 21, 2014) all in US$ unless, otherwise specified

Ticker SEHK: 1314 (Hong Kong)
Share Price: HK$3.97
Market Cap US$719mm
Interest Bearing Debt $0.0mm
Cash & ST Investments US$120.4mm
Enterprise Value US$598.8mm
52 Week Low HK$ 3.62 (May 2014)
52 Week High HK$ 5.75 (Nov 2013)
Dividend Yield 1.0%
Disclaimer: This investment write-up is being submitted solely for the purposes of a Research Idea Contest: International (ex-US) Top Idea
Contest sponsored by Sum Zero and FactSet. It is not an offer or recommendation of a security or a fund of any type at any time.

Tsui Wah (SEHK: 1314) Investment Write up by Sid Choraria

*** Pl ease note statistics are i n US$ unless specified. Please refer to the attached PDF for the full wri te up with footnotes, tables, charts and
formatting. Readers to l ook through (and try some of) the 170 dishes and drinks in the Tsui Wah Hong Kong and Shanghai menu ***

Take a Simple Idea and Take it Seriously Charlie Munger

Investment Summary

Tsui Wah (SEHK: 1314, market cap: US$719mm
1
) is an iconic fast-casual Cha Chaan Teng restaurant chainwith over 41
2

stores across Hong Kong, China and Macau serving up delicious, quality foodfast. The company has competitive
advantages with exceptional unit store productivity and return metrics, i.e. approx US$5mm annual revenue per store,
1-2 months breakeven
3
and average, 18 months payback
4
with some stores having a 12 month payback. Per store
revenue is higher than legendary brands (McDonalds, Chipotle, etc..refer to QSR 50 list in Appendix B) which sell approx
US$2.0-2.5mm per store annually. Tsui Wah operates with ruthless efficiency with 5 year median metrics of US$1,187
per sq ft, US$27,227 per seat and US$55,238 per employee and high seat turnover (12 customers per seat per day). Tsui
Wah serves food 24 hours a day at many stores with customers happy to wait in long lines to try the 170 dishes despite
premium prices (which go up every year). Admittedly, as captive customers, I have dined at several restaurants over 24
months and multiple visits confirm that Tsui Wah has wide customer appeal beyond existing markets and stores are
packed during all meals - breakfast, lunch, dinner, tea, dessert and past midnight, maximizing operating efficiency.

Tsui Wah is a franchise with a five decade history earning high returns on invested capital (5 year median of 90.6%),
strong revenue growth (5y CAGR of 27.3%), operating and net income up ~2.5x in 3 years, consistently higher margins
than peers with 5 year median c. 69.9% gross, 14.6% EBIT and 12.1% net margins with positive same store sales (SSSG).
The business is a prodigious cash flow generator (5 year OCF CAGR of 22.4%) requiring limited capital intensity
(US$1.15mm per new store, approx. 18 month payback) to grow with negative working capital and a sizeable net cash
pile and practically debt-free balance sheet. Tsui Wah recently boosed its dividend payout ratio to 62.8% versus 53.4%
last year. Management have persisted on their core, are value-oriented vs. scale-oriented, with a religious focus on
return on capital. Indeed, Chairman, Lee Yuen Hong, founded Tsui Wah with a simple idea: serve delicious, fresh food
fast with attentive service in an inviting dining atmosphere.

I believe Tsui Wah is at a key inflection point with higher earnings power and multiple catalysts while Mr. Market is yet
to catch on. The company is in the early innings of efficiently replicating its stores in China, where the business is earns
high revenue per store and efficiency metrics relative to global QSRs, low payback of approx. 18 months, positive SSSG
and nearly 12% higher ASP than its core market, Hong Kong. I estimate metrics and margins to gradually expand as the
company ramps up and benefits from economies of scale. As a result, revenue in China jumped 74.3% for March 2014 as
Tsui Wah profitably doubled store count and completed strategic long-term investments with its central kitchen, to
support multiple restaurants over the long run. In Hong Kong, Tsui Wah diversified sales channels, which will lead to
higher market share while requiring limited capital to grow. Insiders eat their own cooking and have bought stock
recently at higher prices, while Mr. Market has taken a short-term view with shares at 52 week lows declining over 30%
in less than 9 months from a high of HK$5.75 to HK$3.97. Tsui Wah will nearly double its March 2013 revenue and
EBITDA by March 2015 and by March 2017, grow to 80 restaurants in Hong Kong, China and Macau, further doubling
2014 revenue and EBITDA while earning high returns on capital . Tsui Wah can replicate its tested formula to broader
Asian markets, providing a free call option, which I currently attribute no value to. At current levels of 10.8x 2016 EBITDA
less maintenance capex, Tsui Wah offers meaningful upside to investors, with a 2-3 year horizon. The positive presence
of catalysts and incentivized management with a focus on return on capital will materially drive shareholder value.

Source: Annual report, I PO prospectus, filings.
1
As of June 21, 2014. FX: US$1 = HK$7.75. Pl ease note that this FX rate is used across the write-up. All fi gures i n US$, unless otherwise stated.
2
As of March 2014, excl uding the Causeway store, which was completed in April 2014.
3
Poi nt at which monthly revenue is at least equal to monthly expenses (cost of goods, staff costs, depreciation, property rent als, fuel and utility
expenses, advertising and marketing expenses and other operating expenses) .
4
Amount of time it takes for the accumulated net profit from a restaurant to cover the costs of opening and operating the restaurant up to that
poi nt, including incurred capital expenditures and ongoing cash and non-cash operating expenses.


Why is Tsui Wah Worth Your Attention?

Exceptional Efficiency with High Returns on Invested Capital and Amongst Lowest Unit Store Payback Periods in
Sector: Tsui Wah operates with ruthless efficiency: you order, eat, pay and go. The company has exceptional unit
store productivity and return metrics in the region and perhaps globally approx. US$5.0mm revenues per store per
year, 1-2 months breakeven, approx 18 months payback with some stores having a payback of approx. 12 months.
Tsui Wah earns approx US$1,187 per sq ft, US$55,238 per employee and US$27,227 per seat on a 5 year median
with high seat turnover (customer/seat per day of 12) and net margins of c. 11-14%. Each new restaurant in Hong
Kong and China requires, total capital expenditure of approx. HK$9mm (US$1.15mm) with approx 18 month
payback. Tsui Wahs efficient operations consist of: communal seating to minimize idle seats (avg number of invoices
per table is 25), around the clock operations (stores operate 16-24 hours a day), speed of service (high
customer/seat per day turnover of 12 per day), central kitchen processing, standardized food preparation process
and a modern IT system which management deploy to carefully scrutinize and react to customer spending data.

I am also inspired by the book, The Dhandho Investor and turn to a quote on page 31 of Chapter 4, Mittal
Dhandho: A final note on the Marwaris
5
and their ingrained Dhandho ways. Recently, I (Mr. Pabrai) had dinner with
a good Marwari friend of mine, and asked him how the stereotypical Marwari approaches investing capital in a
venture? He said quite nonchalantly, that Marwari business people, even with only a basic education, simply expect
all their invested capital to be returned in the form of dividends in no more than 3 years. They expect that, after
having gotten their money back, their principal investment continues to be worth at least what they invested in it.
They expect these to be ultra low-risk bets. Now, folks, this is really good stuff they dont teach this at Harvard
Business School. As best as I can tell, Tsui Wahs moat is here to stay and it is efficient even when compared to
legendary quick service brands, which sell between US$2.5-3.5mm per store.

The company offers 170 dishes and dri nks in the main menu (attached PDF of Hong Kong menu -
https://www.dropbox.com/s/o0x4thkvstuxj68/Tsui%20Wah%20Hong%20Kong%20Full%20Menu.pdf ). This means,
customers can have all meals - breakfast, dinner, lunch, tea, dessert, drinks and post midnight snack under one roof.

Iconic Brand with Loyal and Captive Customers Providing Multitude of Free PR and Word of Mouth: With a rich
history spanning nearly five decades, Tsui Wah has an iconic brand and renowned for maintaining an exceptional
quality standard that prioritizes safety, freshness of food and efficient service across all of its stores, at all times . In
spite of the long lines (often well past midnight, customers (including the author) remain loyal and captive and are
only delighted to pay up for the premium prices (Tsui Wah raises prices every year). For readers, that have not
visited a Tsui Wah store, the companys brand equity is evidenced by a multitude of gratis positive recommendation
and customer word of mouth, a key indicator to a companys brand and pricing power.

CNN
6
reports #12: All-hours dining: Tsui Wah is fast becoming an institution in Hong Kong, serving popular dishes
such as Hong Kong-style curries, fish ball noodles, pork cartilage in soy sauce, and satay beef noodles. But what
really endears the restaurant and compels customers to buy souvenir Tsui Wah T-shirts - is the fact that Tsui Wah
stays open 24 hours a day, even during Hong Kong typhoon signal number 8
7
. Time Magazine
8
in the Top 10 Things
to Do in Hong Kong writes Try the perennially popular Tsui Wah. New York Times
9
reports you should head to
Tsui Wah on Wellington Street, open 24 hours. The time to turn up is between 2am and 4am, because thats when
Hong Kongs most beautiful people and celebrities, will be there, itching their scratch for naai cha and peanut butter
toast. If you see Donald Tsang
10
, Hong Kongs Chief Executive Officer and (Past) President in the next booth, slurping

5
The author i s admittedly biased hailing from the Marwar region.
6
http://travel.cnn.com/hong-kong/none/worlds-greatest-city-hong-kong-576599
7
Even wi nds of 100+ mi les per hour that normally result i n canceled flights and cl osed universities will not prevent Tsui Wah.
8
http://content.time.com/time/travel/cityguide/article/0,31489,1850110_1850124_1850915,00.html
9
http://www.nytimes.com/2008/01/30/travel/30webcomfort.html?_r=0
10
http://en.wikipedia.org/wiki/Donald_Tsang


a bowl of noodles, be sure to say hello. CNN
11
reports on Secret Eating Habits of Famous Shanghai Chefs When
Peninsula hotel chef in Shanghai is not manning Peninsula hotel kitchens, he secretly dines at Tsui Wah... Yahoo
12

writes in 5 Snacks You need to Eat at the Hong Kong Airport It may be considered fast food, but Tsui Wah fish balls
are actually made fresh every day with eel and 10 other kinds of fish. Not convinced? Tsui Wah is also prominently
featured in a number of films, with popular hits like Perfect Couples (1993), Love in a Puff (2007), Love in the Buff
(2011), and Lan Kwai Fong (2011) all providing free PR for Tsui Wahs brand.

Free Cash Flow Generation, Strong Balance Sheet and Track Record of Profitability Over Several Economic Cycles:
Under the founders, Tsui Wah has transformed itself from one humble tea shop to the largest operator of Cha
Chaan Teng (meaning: Hong Kong style tea restaurant) quick service restaurant based on revenue and number of
seats in Hong Kong. For the financial years ended March 31, 2010, 2011, 2012, 2013 and 2014, the groups turnover
was US$56.8mm, US$77.2mm, US$98.4mm, US$139.9mm and US$190.2, growing 35.9%, 27.5%, 42.2% and 35.9%
annually respectively. Due to Tsui Wahs efficiency (high revenue/store and seat turnover, 24 hour dining, 170+
menu item list, etc.), net margins have been consistently higher than peers, c. 11%- 14% (5 year median of 12.1%)
over the last 5 years. The business has been free cash flow positive every year requiring limited capital intensity
(US$1.2mm per new restaurant, approx. 18 month breakeven). Operating cash flow has grown at 22.4% over 5 years
with March 2014 cash flow from operations of US$28.9mm, growing 21.5%. Tsui Wahs stores in Hong Kong and
China, grew SSSG by an average 12.5% and 16.2% respectively as of March 2012 and 8% and 5% in March 2013 and
2014 respectively. Tsui Wah has a strong balance sheet, with a sizeable and growing cash pile with a near debt-free
balance sheet. The company generates significant cash flow, that more than exceeds new store capex requirements.
As of March 2014, Tsui Wah boosed its dividend payout ratio to 62.8% versus 53.4% in March 2013.

Tangible Catalysts as Tsui Wah Rolls Out Stores in China, a Market Where It is Critically Profitable with High
Return Metrics and Where It Enjoys Higher Average Pricing Than Core Market: Tsui Wah has a target of reaching 80
restaurants in Hong Kong and China by March 2017. The company has already laid the building blocks by investing
long-term in 2 new central kitchens in China and 1 in Hong Kong, which alone can serve over 110 restaurants.
Moreover, Tsui Wah has over the last year doubled stores in China to 13 from 7 in March 2013, and has a successful
long track record in operating chain Cha Chaan Tengearning high returns on capital . Critically, the business is
profitable with high revenue per store and efficiency metrics relative to global QSRs, low payback periods of approx.
18 months, positive SSSG and nearly 12% higher average selling prices in its top 10 selling items than its core market.

Tsui Wah strategy in China is to open one or more flagship stores in high-traffic locations with a central kitchen to
support restaurants in the area. Just prior to IPO in Nov 2012, the company operated 3 flagship restaurants in
Shanghai, each 7000 sq. ft. with an average 65-84 seats. For the year ended March 2013, Tsui Wah opened 5
restaurants (4 in Shanghai and 1 in Wuhan). In March 2014, the company doubled its store count in China, by
opening a further 6 restaurants in high-traffic locations leading to revenue growth of 74.3%. In China, I estimateTsui
Wah will open approx. 9 stores in March 2015 and 8 stores each in 2016 and 2017. This is conservative as
management have stated in the IPO prospectus a target of opening 11 stores in March 2015 in China. Each new
store requiring HK$9mm (US$1.15mm) capex, which means US$9-13mm annually with avg payback 18 months. In
Hong Kong, Tsui Wah will open between 4-6 stores for the next 3 years. I expect revenue % contribution of Tsui
Wah stores in China to rise to nearly 40% by March 2015 and approx. 45% by March 2017. Revenue contribution
from China has jumped from 8.0% in March 2010 to 24.1% by March 2014.

The table below illustrates the historical mix of stores and revenue in China. Note that despite ramping in a new
market, stores in China sell higher revenue per store than even the most efficient global QSRs.

11
http://travel.cnn.com/shanghai/eat/secret-eating-habits-shanghai-chefs-350064
12
https://www.yahoo.com/travel/5-snacks-you-need-to-eat-in-the-hong-kong-airport-now-87928247667.html


Historical Store Count Mar 2011 Mar 2012 Mar 2013 Mar 2014
Total Tsui Wah Stores 18 22 32 41
Mainland China 2 2 7 13
% of TW stores in China 11.1% 9.1% 21.9% 31.7%
Source: Company filings, IPO prospectus.

New Store Opening in China Mar 2011 Mar 2012 Mar 2013 Mar 2014
Yangtze River Delta (primarily Shanghai) 1
13
0 4 3
Southern China (Shenzhen/Guangzhou) 0 0 0 2
Central China (Wuhan) 0 0 1
14
1
Total New Store Opening in China 1 0 5 6

China Revenue Breakdown Mar 2011 Mar 2012 Mar 2013 Mar 2014
China Revenue (US$ mm) $7.4 $10.4 $26.1 $45.9
Total Tsui Wah Revenue (US$ mm) $76.7 $97.8 $139.0 $190.2
China % of Total Revenue 9.6% 10.6% 18.8% 24.1%
China Revenue Per Store (US$ mm) $3.7 $5.2 $3.7 $3.5

I expect metrics and margins which are temporarily lower than average to improve as the company starts reaping
fully the benefits of economies of scale from having laid the long-term foundation in China. Tsui Wah charges an
12.4% higher on its top 10 selling items in China. Please see below pricing comparision in Hong Kong and China.

HK Menu: https://www.dropbox.com/s/o0x4thkvstuxj68/Tsui%20Wah%20Hong%20Kong%20Full%20Menu.pdf
China Menu: https://www.dropbox.com/s/8enb0bml92tn7mg/Tsui%20Wah%20Shanghai%20Menu.pdf

The unique Cha Chaan Teng in Hong Kong offered by Tsui Wah has gained immense popularity among customers
(see Chinese customer reviews later in write-up). The growth is in part as the menu appeal to traditional Chinese
tastes, while Tsui Wah also serve Western food or fusion food for customers, adding more variety to their menus.

Tsui Wahs food have wide customer appeal, beyond Hong Kong, China and Macau, as dishes are not dissimilar to
Asian cuisine, which provide tangible growth catalysts for the company in the future

13
Opening of second Tsui Wah restaurant in Shanghai, PRC. The first Tsui Wah store i n Shanghai opened in April 2009 (March 2010 fi scal year).
14
Opening of the first Tsui Wah restaurant i n Wuhan, PRC.
Top 10 Items in Tsui Wah China Menu Tsui Wah China Menu Price Tsui Wah Hong Kong Menu Price
Name RMB HK$ equivalent HK$ % Premium
Hainanese Chicken Rice 52 64.8 61 6.3%
Swiss Style Chicken Wings 46 57.3 53 8.2%
Signature Homemade Fish Balls w/ Rice 33 41.1 32 28.6%
Kagoshima Pork Cartilage 49 61.1 46 32.8%
Milk Tea 17 21.2 18 17.7%
12-inch French Hotdog 26 32.4 30 8.0%
Special crispy bun served w/ condensed milk 15 18.7 17 10.0%
Malaysian Beef Briskey Curry 53 66.1 61 8.3%
Shredded Pork & Mushroom w/ Fried Noodles 43 53.6 58 -7.6%
Sizzling King Prawns w/ Fried Noodles 69 86.0 77 11.7%
Average 40.3 50.2 45.3 12.4%


Insiders Have Been Buying Stock With Significant Skin in the Game and Substantial
Experience in the Sector Aligning Interests with Shareholders: Tsui Wah is run by disciplined
management who have been religiously focused on return on capital and profitability.
Admittedly, the founders have been very focused on profitability and have grown judiciously.
The company was founded by Chairman, Lee Yuen Hong in 1989 by acquiring the San Po
Kong Tsui Wah Restaurant together with the founding partners listed below. As of
April 2014, Tsui Wah has significant insider ownership with approx. 62.6% owned by the
founding partners who have successfully grown the business together for 25 years since
1989 and cumulatively have over 190 years of experience in the industry. Notably, insiders have been recent buyers
of the stock in April, acquiring 3.664mm shares and 3.336mm shares on the secondary market at average prices of
HK$4.1097 and HK$4.1935 on 22 & 23 April respectively
15.
Management also recently boosted its shareholder
dividend payout ratio to 62.8% versus 53.4% last year.

Name Title Industry Experience Approx. Ownership
16

Lee Yuen Hong, 59 Chairman and Co-Founder 42 years 26.4%
Ho Ting Chi, 51 Executive Director 34 years 20.5%
Cheung Yu To, 57 Executive Director 35 years 7.9%
Cheung Wai Keung, 63 Executive Director 45 years 4.7%
Cheung Yue Pui, 52 Executive Director 36 years 3.1%
Total 192 years 62.6%
Source: Company Filings, IPO Prospectus.

15
Cui Fa, a company i ncorporated i n the BVI and controlling shareholder, owned approx. 48.19% by Chairman, Lee Yuen Hong, 37.35% by Executive
Di rector, Ho Ti ng Chi and 14.46% by Executive Director, Cheung Yu To. Post the purchase, Cui Fa shareholding as of April 2014 i ncreased to 54.83%.
16
Ownership % as of April 2014 as per ownership i n Cui Fa, Ample Favour and Victor Leap.
Management have
bought shares recently at
higher prices and have
skin in the game


Origins of Tsui Wah: Iconic Asian Brand with a Rich Four Decade History with Humble Roots

The birth of Tsui Wah meant customers facing increasingly fast lifestyles could have all meals breakfast, lunch, tea,
dinner and even late-night snacks Tsui Wah Co-Founder, Lee

Tsui Wah traces its roots to humble beginnings in Hong Kong in 1967 from a simple tea shop in
the streets of Mong Kok to a legendary brand today with chains across Hong Kong, China and
Macau. The caf would serve hot-dogs, cakes and refreshing drinks such as milk tea, coffee and
red bean drinks to locals. Today, Tsui Wah serves over 170 dishes including the famous milk tea,
fish ball noodles, curry chicken, crispy buns with condensed milk and Hainanese chicken rice.
The brand expanded in the 1970s by adding restaurants in To Kwa Wan, San Po Kong and Tuen
Mun, which marked the genesis of modern Tsui Wah restaurants.

During the 1960s, Tsui Wahs current co-founder and current Chairman, Lee Yuen Hong,
worked as a young delivery boy and cook at the caf. Often waking up at three in the morning
to learn how to cook and bake, Lees humble upbringings, sheer hard work and perseverance
from a young age are boasted by those who know him closely.

The operations of the Tsui Wah Group began in 1989 when core shareholders founded the
Group 25 years ago by acquiring the Tsui Wah restaurant in San Po Kong. The companys core
Shareholders had been co-workers at this restaurant prior to 1989 and, through their
extensive working relationship, developed close personal and business ties with each other. Under Lees capable
management, Tsui Wah pursued its next expansionary stage.

The 1990s marked a transformation in Tsui Wah with the rollout of several restaurants in
densely populated and prominent districts such as Central (Hong Kongs financial services
district), Causeway Bay, Jordan and Tuen Mun. The premier locations of these restaurants
allowed Tsui Wah to maximize revenue and strengthen brand image.

In 1998, the company opened its iconic 24 hour store at Wellington
Street, Central strategically located next to Hong Kongs famous
nightlife district, Lan Kwai Fong. The 3 story, c.5,000 square foot
Central store can be found bustling late into nights. Tsui Wahs
popularity flourished further after the landmark Central branch began receiving visits from local celebrities ranging from
singing sensations to the Managing Director of Hutchison Whampoa. From just one in 1998, Tsui Wah today boasts eight
24 hour eateries.

As Tsui Wahs popularity grew, the company featured as a Hong Kong cultural phenomenon and in local
blockbuster films such as Love in a Puff (2007), Love in a Buff (2012), Perfect Couples (1993) and Lan
Kwai Fong (2011). Indeed, cha Chaan Teng cuisine has grown to become so iconic of Hong Kongs
culture that a political officer proposed it be recognized by UNESCO as a cultural heritage of
humanity.

By the 2000s, Tsui Wah established a premium reputation for serving delicious signature dishes,
including the champagne style milk tea, crispy bun with condensed milk, jumbo frankfurter hotdog
and king prawns in XO sauce, in an efficient and lively setting. Tsui Wahs restaurants were packed
with long lines as its brand had become ingrained in the Hong Kong customer.
Its 170 simple menu offerings had customers repeatedly returning no matter what the time of
the day, or night.

Tsui Wah in 1960s in
Mongkok
Co-Founder, Lee Yuen
Hong started his career as
a delivery boy in the 1960s
Tsui Wah in Hong Kongs
business district
UNESCO recognition
Signature Dish:
Champagne Milk Tea


To cater to the surging demand, the company built a c.10,000 sq. ft. central kitchen in 2008 that would serve up to 25
stores. This central kitchen was the first of its kind in the heavily fragmented cha Chaan Teng industry which today
comprises over 6,000 smaller restaurants. The central kitchen procured semi -processed ingredients and conducted non-
essential cooking processes (e.g. fish balls, meat cutting, sauce creation) in a location separate to the restaurant floor.
Lees central kitchen initiative boosted efficiency and quality control for Tsui Wah group.

In 2009, Tsui Wah began to replicate its success outside of Hong Kong by opening its first store
in Mainland China. Within 5 years, the number of stores in Mainland China has grown to 13
locations across 5 cities including Shanghai, Shenzhen and Guangzhou. In 2011, the company
continued to expand outside of Hong Kong through an exclusive joint venture with the Galaxy
Hotel in Macau. The company has commissioned for the establishment of several central
kitchens in China to complement its expansion plan.

More recently, Tsui Wah pursued initiatives to deliver its cha Chaan Teng menu offerings in innovative
formats. Tsui Wah opened a c.12,000 sq. ft. self-service eatery at the Hong Kong International Airport in
2010 and a delivery service catering to upper-middle class Hong Kong residents in 2012.

In November 2012 Lee took Tsui Wah public. Remarkably, Tsui Wah, the once small
tea caf became the first cha Chaan Teng operator to IPO. At time of IPO, the
company operated 26
17
restaurants, including 21 in Hong Kong, 4 in China and 1 in
Macau. As of March 2014, the company operates 41 branches in Hong Kong, Macau
and China. I anticipate that by March 2017, Tsui Wah will have nearly 80 stores in Hong Kong and
China. As best as I can tell, the IPO has positioned the company to multiply its stores ad business
over the coming years given the wide appeal for its brand and food.

History of Tsui Wah

Tsui Wahs journey started off with humble beginnings in 1967. The company went through a business transformation
in the 1990s and has immense potential to multiply stores, profitably.

17
I ncl udes one restaurant in Hong Kong and one restaurant i n Macau owned by Jointly-Controlled Entities.
Tsui Wah in China
Tsui Wah Delivery
Tsui Wah goes public


Cha Chaan Teng: Tsui Wah is Hong Kongs Version of McDonalds (Except The Food Is Great)

Tsui Wah epitomizes Cha Chaan Teng efficiency and is often reversed by customers as Hong Kongs version of
McDonalds through its focus on efficiency, customer service and food quality (except the food is great)

Tsui Wahs primary cuisine style, Cha Chaan Teng (meaning tea restaurant) is an iconic
representation of Hong Kong dining culture and traces its roots back to the 1950s.Cha
Chaan Teng cuisine combines traditional Cantonese fare with Western and Asian elements.

Colonial British culture began influencing the introduction of western cuisine which was
then only served in high-end restaurants. Western food was catered mainly toward
foreigners and was considered a luxury at the time. Seeking to offer such a culinary luxury
at an inexpensive price that would cater to a wider audience, local Chinese residents began
opening small cafes called bing sutt (translated as ice chambers). Such traditional
neighborhood cafs offered light refreshments including sandwiches, buns, French toast and cold drinks. By the 1960s,
such cafes became popular spots for local working class residents. A typical bing sutt featured vintage furniture, hanging
electric fans and handwritten menus to add to its community feel. Over the decades, Bing Sut evolved into Cha Chaan
Teng and became a local and authentic dining Hong Kong culture that combines traditional Cantonese fare with both
Western and Asian elements.

Tsui Wah has perfected the Cha Chaan Teng formula for creating the McDonalds of Hong Kong through its focus on
efficiency, central to understanding Tsui Wah. Tsui Wahs efficient and standardized operations consist of the following:

Around the Clock Operations (Even During Hong Kongs Wild Typhoon 8 Season): Tsui Wah is always open for
business (even during Typhoon 8 for anyone that has experienced Hong Kong typhoon season, that is
impressive). See #12 on CNNs review on 50 Reasons Hong Kong is the Worlds Greatest City
(http://travel.cnn.com/hong-kong/none/worlds-greatest-city-hong-kong-576599). Several Tsui Wah branches
serve breakfast, lunch, dinner and late night dinner through 24 hour, 7 days a week. Hong Kong stores are open
a median of 19 hours, while China stores are open at least 14 hours. Catering to customers needs throughout
the day allows Tsui Wah to maximize revenues (indeed Tsui Wah makes more revenue per restaurant than most
restaurants globally that I know of). Across Tsui Wah restaurants, average daily revenue per comparable
restaurant is HK$124,000 or US$16,000. This is higher than even the most efficient players
(http://www.qsrmagazine.com/reports/top-50-sorted-average-sales-unit) globally.

Speed of Service Without the Fast Food Experience: Speed of service is crucial to
understanding Tsui Wah. The Tsui Wah philosophy is simple: serve up authentic, distinctive,
finger-licking food quick so that customers can enjoy their food slowly. Tsui Wah uses a
formula of using high-quality ingredients, signature dishes, simple but elegant restaurant
design and friendly employees to take care of customers. In terms of preparation, the use of a
central kitchen enables Tsui Wah to shorten significantly the amount of time needed to
prepare most dishes. The company maintains appropriate waiting staff -to table ratios and
adopt a set of strict table service standards designed to meet the expectations of customers
and to enhance the speed of service. Tsui Wah has implemented a set of modern
management information systems to standardize restaurant management. Table staff uses
electronic personal data assistants to take orders, which reduces errors and enhances the
speed of service. The computerized point-of-sale system at Tsui Wah restaurants captures consumer spending
data, which is closely monitored and analyzed by management. Tsui Wah has approximately 25 average number
of invoices per table per day per comparable restaurant.

Speed of Service
Without the Fast
Food Experience
Cha Chaan Teng is
ingrained in the Hong Kong
and Chinese culture


Communal Seating: Having visited Tsui Wah over 50 times in the last 12 months, I note
that although Tsui Wah offers full service dining, many customers very willingly share
tables with other customers. This maximizes sales efficiency per square foot and
minimizes idle seats and increases average daily seats turnover. It is difficult to spot an
empty seat at Tsui Wah particularly during rush hours.

Tsui Wah Has Perfected and Standardized the Cha Chaan Teng Template to
Operating a Scalable Business Model of Chain Restaurants: Tsui Wah has established a scalable business model
of chain Cha Chaan Teng restaurants by developing and implementing standardized operations. The company
has a set of standard operating procedures for major restaurant operating functions, including staff at various
food booths, wait staff, cashiers, floor managers, chefs, restaurant managers and cleaning staff, which have
been compiled and updated based on over 45 years. In the late 2000s, Tsui Wahs stores implemented a modern
information technology system that greatly benefited the ordering process and customer satisfaction. In
addition, all of the purchases of food ingredients, raw materials and other inventories required by our central
kitchen and restaurants are made through its centralized purchasing department. This centralized purchasing
strengthens the companys bargaining power with suppliers through bulk purchasing and reduces costs .

Central Kitchen Applied to Full Service Dining: Tsui Wah has successfully applied the concept of central
kitchens, which is generally associated with fast food restaurants, to operating full -service chain Cha Chaan Teng
restaurants. The use of a central kitchen helps Tsui Wah to ensure the consistent quality of food and timeliness
of delivery across different locations, to better manage inventory and facilitate greater efficiency through
greater economies of scale, such as task specialization among chefs at the central kitchen, decreased reliance on
restaurant-level kitchen staff and increased economic use of food ingredients and other supplies. Tsui Wahs
processed food and ingredients is directly delivered and handled by central kitchens. In addition, the use of a
central kitchen increases the dining area in restaurants which boosts revenue and profits.

Tsui Wah has allocated significant resources to develop and implement a efficient and scalable model which
provides the ability to profitably replicate their business model and open new restaurants in new markets

Curious to learn more about Cha Chaan Teng? A few links for additional reading:

CNN Cha Chaan Teng Cheat Sheet: http://travel.cnn.com/hong-kong/eat/cha-chaan-teng-cheat-sheet-how-
order-hong-kongs-temples-comfort-food-726567
Wikipedia Cha Chaan Teng 101: http://en.wikipedia.org/wiki/Cha_chaan_teng
Hong Kong Top 10 Things to do: Cha Chaan Teng:
http://content.time.com/time/travel/cityguide/article/0,31489,1850110_1850124_1850915,00.html
Top 10 Hong Kong Cha Chaan Teng: http://www.ladyironchef.com/2012/12/top-10-hong-kong-cha-chaan-teng/
NYT: Comfort Food in Hong Kong: http://www.nytimes.com/2008/01/30/travel/30webcomfort.html?_r=0

Communal Seating


Tsui Wah Business Segment Overview
18

Historical Restaurant Breakdown

As of March 2014, Tsui Wah had 41 stores by year end (not including the landmark renovated Causeway Bay Store in
Hong Kong which was completed in April 2014).

Historical # of Stores Mar 2010 Mar 2011 Mar 2012 March 2013 6M Sept 2013 March 2014
19

Hong Kong 13 16 19 24 25 27
Mainland China 1
20
2
21
2 7 9 13
Macau 0 0 1
22
1 1 1
Total 14 18 22 32 35 41
Source: Annual reports, IPO Prospectus, company website. March 2014 actual based on full year results.

Historical Geographical and Business Segment Revenue Breakdown (US$ in millions, unless otherwise specified)

Revenue in US$mm Mar 2010 Mar 2011 Mar 2012 March 2013 6M Sept 2013 Mar 2014
Hong Kong 51.7 69.0 87.1 112.3 68.3 142.6
Mainland China 4.6 7.4 10.4 26.3 20.5 45.9
Macau 0.5 0.7 0.8 1.3 0.9 1.7
Total 56.8 77.2 98.4 139.9 89.7 190.2

% of Revenue Mar 2010 Mar 2011 Mar 2012 March 2013 6M Sept 2013 Mar 2014
Hong Kong 91.0% 89.5% 88.5% 80.2% 76.2% 75.0%
Mainland China 8.0% 9.6% 10.6% 18.8% 22.9% 24.1%
Macau 1.0% 0.9% 0.9% 0.9% 1.0% 0.9%
Source: Annual reports, IPO Prospectus, company website. March 2014 actual based on full year results.

Comparable Restaurant Sales and Other Metrics (US$ unless otherwise specified)
Daily average revenue (US$) Mar 2010 Mar 2011 Mar 2012
Hong Kong 12,387 13,936 15,742
Mainland China - 16,903 19,613
Overall daily average revenue 12,387 14,194 16,000
Source: IPO Prospectus. SSSG grew 8% and 5% in March 2013 and March 2014 respectively.

US$ unless specified Mar 2010 Mar 2011 Mar 2012 March 2013 6M Sept 2013 Mar 2014
Approx. Sq. Ft Store 47,500 65,000 81,200 138,700 158,700 198,700
Revenue/Sq. Ft
23
$1,195 $1,187 $1,212 $1,009 $1,130 $957
# of Employees 1,222 1,397 1,739 2,181 3,400 3,670
Revenue/Employee $46,461 $55,238 $56,598 $64,156 $52,745 $51,813
Approx. Seats
24
2,136 2,802 3,333 5,193 5,730 6,984
Revenue per Seat $26,580 $27,540 $29,530 $26,945 $30,973 $27,227

18
I ncl udes one restaurant i n Hong Kong and one restaurant i n Macau owned by Jointly-Controlled Entities.
19
As per March 2014 annual results. Causeway Bay store was fully renovated by Apri l 2014. Ts ui Wah restaurant network:
http://www.tsuiwah.com/en/business/restaurant/branches/
20
The fi rst Tsui Wah store in Shanghai opened i n April 2009 (March 2010 fi scal year).
21
Opening of second Tsui Wah restaurant in Shanghai, PRC i n September 2010.
22
Opening of the Galaxy Casino Macau Tsui Wah restaurant i n May 2011, whi ch marked the groups expansion in Macau.
23
Assuming average store size in Hong Kong of 3,000 sq. ft. and 8,500 sq. ft. i n Chi na and 7,200 for Macau. For 6M 2013, we have multiplied by 2.
24
Assuming average number of tables i n Hong Kong is 49 and 75 i n China seating 2 to 4 customers a table.


Business Model with Significant Competitive Advantages: Customer Captivity, Pricing Power,
Operational Efficiency and High Quality Food is Key To Understanding Tsui Wah

Tsui Wah benefits from competitive advantages due to customer captivity, pricing power and operational
effectiveness that allow breakeven in 1-2 months and investment payback period on average of approx. 18 months.

Customers Love Tsui Wah and are Loyal and Captive (Disclosure: Author is a Captive Customer): Tsui Wah
customers are captive and repeat customers. I believe the best and most recognizable brands arent
built through advertising, but simply through word of mouth, with Tsui Wah customers telling
others. The company does an exceptional job beginning with each customers experience into the
store, the look and feel of stores, the design items that carry the companys logo and the signature
dishes. Tsui Wah is well positioned to become a highly recognized brand.

Captive Customers Love Tsui Wah (Author Pictured on the Right with Tsui Wahs Famous Milk Tea)

Tsui Wah customers have gone so far as to develop blogs about Tsui Wah, providing free marketing and customer
word of mouth. A few interesting links that can illustrate the love that customers have for Tsui Wah:

Everyone should try this Cha Chaan Teng: http://www.tripadvisor.com.gr/ShowUserReviews-g294217-
d798374-r160082617-Tsui_Wah_Restaurant-Hong_Kon.html
Hong Kongs own version of McDonalds: http://www.tomeatsjencooks.com/870/hks-best-tsui-wah
Captive customers deciding to dress up in Tsui Wah costumes for Hong Kong Halloween (picture above in
the table in the middle): http://www.hongkonghustle.com/local -culture/288/hong-kong-halloween-2007/
Dinner at Tsui Wah: http://www.shootfirsteatlater.com/2012/07/24/dinner-at-tsui-wah-restaurant/
One spoonful at a time: http://onespoonfulatatime.wordpress.com/2011/01/01/tsui -wah
Customer at Tsui Wah on last night in HK: http://myfoodsirens.wordpress.com/2011/10/22/tsui -hua/
USA Today: http://www.usatoday.com/experience/food-and-wine/hong-kong/tsui-wah/2942365/
You Tube customer video on Tsui Wah: https://www.youtube.com/watch?v=qGhVYtW10us
Post-mid night snack at Tsui Wah: http://www.lifestyleasia.com/hk/en/scene/people/feature/dj -miss-
yellow-on-lifestyleasias-instagram-me-column/
Discover HK: http://www.discoverhongkong.com/eng/dine-drink/whats-hot/timeout/chinese-bakeries.jsp
HK Style Steak: http://outforalonglunch.com/2014/05/13/building-a-hk100-rump-tsui-wah-hong-kong/

Tsui Wah Has a Consistent History of Raising Prices Every Year: When evaluating Tsui Wahs competitive
advantages, I am reminded of a quote from Mr. Buffett
25
The single most important decision in evaluating a
business is pricing power (even more so than good management). If you have the power to raise prices without
losing business to competitors, you have a great business. Tsui Wah has consistently raised the average selling price
of menu offerings year-after-year without losing its customers. has indicated that between 2010 and 2013 average
prices hiked by c.5%. In April this year, Tsui Wah introduced a new menu and raised prices c. 5% across the board
even though its menu is already considerably pricier than other similar Cha Chaan Teng cafes. Importantly, such
price hikes or sustained premiums do not bother the mid-high end customers (including us as customers) who are
continually willing to wait in long queues at many of Tsui Wahs branches in Hong Kong and China. Data from Frost &

25
http://www.bloomberg.com/news/2011-02-18/buffett-says-pricing-power-more-important-than-good-management.html.


Sullivan indicate that Tsui Wah restaurants have the highest average selling price and customer seat turnover
amongst peers. In China, Tsui Wah boasts an average check size which is approx. 35% greater than the peer average
according to Frost & Sullivan. Tsui Wahs demonstrated higher average selling prices do not discourage customers as
observed with the greater average seat turnover.

Tsui Wah is Incredibly Operationally Efficient with Amongst Highest Revenue/Store, Sales/Sq. Ft, Seat Turnover
and Amongst Lowest Payback Periods: Tsui Wah operates with ruthless efficiency: you order, eat, pay and go. The
company has exceptional unit store productivity and return metrics. Tsui Wah makes approx. $5mm annual revenue
per unit store, approx 1-2 months breakeven and approx 18 months payback. Based on my estimates, the company
sells approx US$1,187 per sq ft, US$55,238 per employee and US$27,227 per seat 5 year median with high seat
turnover (customer/seat per day of 12). These are exceptional metrics even when compared to legendary global
brands, including McDonalds, Subway, Chipotle, Chick-a-Fil, which sell between US$2.5-3.5mm per store annually on
a per unit basis.

Tsui Wah has implemented a highly efficient and standardized operations which enables the
company to maximize profits, achieve economies of scale and establish a scalable business
model. This covers every aspect of operating functions, from standardized food preparation and
product development, quality control, restaurant site selection and ambience, speed of service,
management structure, employee hiring and training, central kitchen and a modern IT system to
scrutinize customer spending. At Tsui Wah restaurants, the duties of staff are highly specialized
with an efficient organizational structure, allocating chefs and staff with specific duties and
stating their relative rank in the restaurants. In addition to improving work efficiency and
ensuring quality consistency of food, this specialization helps to protect proprietary recipes and
cooking methods, and shorten training cycles. Table staff use electronic personal data assistants
to take orders. The system records each order and forwards the food requests to the restaurant
kitchen directly for food preparation. The system reduces errors and enhances time efficiency.
The collected data includes date and time of order of meals, location of a customers seat,
quantities of each menu item sold, and cash, smart card and credit card receipts. The collected
data is transmitted to headquarters automatically every night, enabling management to continually monitor
operating results and spending at each restaurant.

Revenue Per Store (US$mm) Mar 2010 Mar 2011 Mar 2012 Mar 2013 6M Sept 2013 Mar 2014
Hong Kong 4.0 4.3 4.6 4.7 5.5 5.3
Mainland China 4.6 3.7 5.2 3.8 4.6 3.5
Revenue per store 4.1 4.3 4.5 4.4 5.1 4.6
Source: IPO prospectus, company filings

Daily Average Revenue Per
Comparable Restaurant (US$)
Mar 2010 Mar 2011 Mar 2012
Hong Kong 12,387 13,936 15,742
Mainland China - 16,903 19,613
Daily average revenue 12,387 14,194 16,000
Source: IPO prospectus, company filing. SSSG grew 8% and 5% in March 2013 and March 2014 respectively.

US$ unless specified Mar 2010 Mar 2011 Mar 2012 March 2013 6M Sept 2013 Mar 2014
Approx. Sq. Ft Store 47,500 65,000 81,200 138,700 158,700 198,700
Revenue/Sq. Ft
26
$1,195 $1,187 $1,212 $1,009 $1,130 $957
# of Employees 1,222 1,397 1,739 2,181 3,400 3,670

26
Assuming average store size in Hong Kong of 3,000 sq. ft. and 8,500 sq. ft. i n Chi na and 7,200 for Macau. For 6M 2013, we have multiplied by 2.
Tsui Wah Waiter
with a PDA
which reduces
time and is used
to analyze
spending habits


Revenue/Employee $46,461 $55,238 $56,598 $64,156 $52,745 $51,813
Approx. Seats
27
2,136 2,802 3,333 5,193 5,730 6,984
Revenue per Seat $26,580 $27,540 $29,530 $26,945 $30,973 $27,227

Frost & Sullivan Cha Chaan Teng Benchmarking (source: IPO prospectus as of Dec 2011)
US$ unless specified Customer/Seat/
Day (Turnover)
Revenue/Store Average Daily
Revenue
Number
of Seats
Tsui Wah Restaurant 11.47 5.2 13.6 2950
Tai Hing Roast Restaurant 10.72 2.5 6.4 2,510
Tai Hing New Century 9.67 3.6 9.9 1,630
Ngan Lung Restaurant 9.8 2.6 6.9 1,675
Macau Restaurant 10.44 4.0 11.2 820
Maxims Hong Kong Day 8.39 1.8 3.8 630
Ming Yuen Restaurant 10.8 1.9 5.4 360
Lan Fong Yuen 11.43 1.6 4.1 295
Fu Doo Restaurant 10.32 1.4 5.7 285
Macau Tsui Yuen Restaurant 10.49 1.2 3.3 230
Median 10.5 2.2 6.0 725.0
Source: IPO prospectus. Data compiled by Frost & Sullivan as of December 2011 (calendarized).

Average Spending Per Invoice (US$) Mar 2010 Mar 2011 Mar 2012
Hong Kong 8.5 8.8 9.5
Mainland China - 21.8 24.5
Overall Spending Per Invoice 8.5 9.29 10.3

Invoices at restaurants are primarily settled by way of cash and smart card. The average number of invoices per
table per day for restaurants in China is lower but average spending per invoice for restaurants in China is higher
than restaurants in Hong Kong. Menu pricing for restaurants in China is generally higher than in Hong Kong and
customers in China are also not accustomed to communal seating arrangements, thereby reducing the number of
invoices per table per day. On the other hand, customers in China are accustomed to ordering more dishes and
more expensive menu items, which increases the average spending per invoice

Tsui Wah Serves Delicious, Safe and Fresh Food: The core philosophy of Tsui Wah is to serve delicious, safe and
fresh food of consistent quality to customers. Tsui Wah has implemented a set of standard operating procedures,
including a comprehensive set of quality control procedures covering all levels of operations including (i) supply
chain, (ii) central kitchen, (iii) logistics and (iv) each restaurant at each stage of the raw materials supply and food
preparation process. The company places strict requirements on food safety as well as on the appearance, smell and
taste of food ingredients. Since 2009, Tsui Wah has engaged an independent testing company, SGS Limited, a
company with over 50 years of experience and 1,200 professionals to conduct spot checks of food samples, so as to
help ensure that food quality. The use of a central kitchen further ensures consistency in food quality across
different branches and allows us to benefit from economies of scale. Tsui Wah has a set of restaurant quality control
programs, including strict adherence to inventory level, spot-check by secret customers, customer feedback and
continuous training programs.

Value Creation Through Combination of Consistently High Returns on Invested Capital and Cash Flow Growth: A
combination of high returns on invested capital and profitable growth drives shareholder value. The ability of a

27
Assuming average number of tables i n Hong Kong is 49 and 75 i n China seating 2 to 4 customers a table.


company to sustain high levels of ROIC depends on the life cycles of its businesses and products, the length of time
its competitive advantages can persist, and its potential for renewing businesses and products. I believe Tsui Wah
demonstrates these qualities. The below table highlights the return on invested capital financial drivers.

Source: IPO prospectus, company filing.

Return on Invested Capital (EBIT/Invested Capital) Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
ROIC 90.6% 75.3% 91.5% 329.6% 49.7%
Return on Invested Capital - Key Drivers Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
Gross Margin (%) 70.0% 69.7% 69.3% 69.9% 70.1%
SG&A excl D&A/Revenues (%) 51.1% 52.0% 48.8% 51.6% 52.7%
D&A/Revenues (%) 3.4% 3.7% 2.9% 3.8% 4.5%
Operating Margin (%) 15.4% 14.0% 17.6% 14.6% 12.9%
Operating Working Capital/Revenues 10.9% 10.9% 7.8% -9.2% -9.0%
Net PPE/Revenues 6.1% 7.6% 11.4% 13.6% 34.9%
Revenues/Invested Capital (%) 5.9x 5.4x 5.2x 22.6x 3.9x
ROIC x 90.6% 75.3% 91.5% 329.6% 49.7% 1 2
1
2


Tsui Wahs Serves Over 170 Delicious, Quality and Signature Dishes Nearly 24 Hours a Day
Adopting a Rigorous Customer Centric Approach

The birth of Tsui Wah meant customers facing increasingly fast lifestyles could have the choice of over 170 dishes and
drinks for breakfast, lunch, tea, dinner and even late-night snacks

The mission of Tsui Wah is to serve delicious, safe and fresh cuisine of high quality to customers. Tsui Wah offers over
170 dishes and drinks in the main menu. I attach the full menu from multiple visits to Tsui Wah Hong Kong and Shanghai
restaurants, particularly for those who outside Asia and who have not yet visited.

Hong Kong Menu: https://www.dropbox.com/s/o0x4thkvstuxj68/Tsui%20Wah%20Hong%20Kong%20Full%20Menu.pdf
Shanghai Menu: https://www.dropbox.com/s/8enb0bml92tn7mg/Tsui%20Wah%20Shanghai%20Menu.pdf

The menu at Tsui Wah are priced to cater the mid- to high-end segment of the market in Asia. The menu can be
classified into categories including: (i) top ten signature dishes, (ii) top 8 fusion dishes, iii) soups and appetizers, iv)
vegetarian food, v) sizzling platter, vi) organic series, vii) tomato series, viii) continental delights, (ix) signature
Malaysian-style curries, (x) new Zealand deep sea fish, (xi) traditional Asian fried noodles and rice, (xii) Hong Kong style
dishes, (xiii) noodles, (xiv) south east Asia dishes, (xv) sandwich series and (xvi) drinks. Tsui Wahs menu is highlighted by
its top 10 signature dishes that are the best sel ling items and representative of the Cha Chaan Teng culinary style.

Tsui Wah Top 10 Dishes by Sales in Hong Kong (#5 recommended for Tsui Wah First Timers)

Swiss Sauce Chicken Wings (HK$53 / US$6.8)
Tsui Wah takes this Cantonese favorite to the next level
by marinating the wings with aromatic sweet soy sauce

Fish Balls & Fish Cakes w/ Flat Rice Noodles in Fish
Soup (HK$32 / US$4.2)
Made daily with handpicked yellow eels and over 10
types of fresh fish

Hainanese Chicken Rice (HK$ 61 / US$7.9)
Juicy, boneless and tender, the dish is served with a
bowl of flavored oil rice made with chicken stock, basil
and lemon grass

Crispy Bun Served w/ Sweet Condensed Milk
(HK$17/US$2.2)
Each freshly baked bun is richly coated with thick butter
and condensed milk

Milk Tea (HK$18 / US$2.3)
Combines premium Ceylon tea leaves and with many
years of teas-training know-how to bring the perfect
cup of milk tea

Jumbo Frankfurter Hot Dog (HK$30 / US$3.9)
The 11 inch juicy sausage and sesame seed bun is filled
with fresh lettuce, tomato and cucumber, with
traditional sauce
1 2
4 3
5
6


Kagoshima Style Pork Cartilage w/ Tossed Instant
Noodles (HK$46 / US$5.9)
The soft and tender stewed pork cartilage is marinated
with special sauce to bring out its mouth watering
flavor

Malaysian Beef Brisket Curry w/ Rice (HK$61 / US$7.9)
Natural and fresh ingredients are blended with
imported curry powder and over 30 types of herbs and
spices

Shredded Pork Mushroom w/ Fried Noodles
(HK$58 / US$7.5)
Crispy and golden pan-fried premium whole egg
noodles covered with lean pork, fresh sprout, leek and
mushrooms

Sizzling King Prawn w/ Fried Noodles (HK$77 /
US$9.94)
The noodles are pan-fried to a crispy and crunchy state,
then mixed with succulent sweet and sour king prawns
on top
Source: Tsui Wah Hong Kong Menu.

Tsui Wah reviews its main menu on a semi -annual basis and tracks feedback from customers. Tsui Wah has tremendous
pricing power and has raised prices every year for the last 5 years (Tsui Wah raised prices recently in April 2014 approx.
5%). Tsui Wah actively seeks to incorporate customer feedback by refining existing dishes and new ones to meet
consumer tastes and regional preferences, and shi fting food and nutrition trends.

The company leverages technology to collect and analyze customer orders, and respond rapidly to customers. For
example, Tsui Wah has developed healthy dishes that use organic food ingredients in response to the modern health-
conscious dining trend. In order to accommodate local tastes, restaurants outside of Hong Kong feature a menu that
comprises most of the items at Tsui Wah restaurants in Hong Kong, with the rest of the dishes developed locally to meet
local demands and tastes. For example, restaurants outside of Hong Kong due to popular local demand in China and
Macau serve rice congee and Cantonese-style barbecue meat, which are not available in restaurants in Hong Kong. In
addition to the main menu, Tsui Wah offer customers a seasonal menu. For example, egg white almond tea in the winter
and specialty icy drinks in the summer. Before launching a new dish in all restaurants, Tsui Wah conducts a test launch in
certain selected restaurants. Tsui Wah continues to track the sales volume and collect feedback from customers after
the test launch, which helps to assess the level of market acceptance to the newly introduced menu item.

Finally, Tsui Wah has implemented standard operating procedures, including a quality control procedures at each stage
of the raw materials supply and food preparation process. The company places strict requirements on food safety as
well as on the appearance, smell and taste of food ingredients. Since 2009, Tsui Wah has engaged an independent
inspection company to conduct random spot checks of the physicochemical, microbial and other indices of food
samples, so as to help ensure that quality conforms with standards.

Tsui Wahs ability to refine and develop menu offerings through a rigorous, systematic and customer centric approach
while serving classics that never change, such as the milk tea are not easy to replicate easily

10
0
9

7

8


Tsui Wah Stores Are Strategically Located in Hong Kong and China and on Average Are Open
a Median of 18 Hours a Day, with Eight Locations in High Traffic Areas Open 24 Hours a Day

Tsui Wah owned and operated 14, 18, 22, 25, 32 and 41 restaurants as of March 31, 2010, 2011, 2012, 2013 and 2014
respectively. The 2014 number does not include the landmark Cause Way bay store that was renovated and completed
in April 2014. Most of Tsui Wahs restaurants are located in high-traffic locations.

Store Count Mar 2010 Mar 2011 Mar 2012 March 2013 6M Sept 2013 March 2014
28

Hong Kong 13 16 19 24 25 27
Mainland China 1
29
2
30
2 7 9 13
Macau 0 0 1
31
1 1 1
Total 14 18 22 32 35 41
Source: Annual reports, IPO Prospectus, company website.

Pictures of Selected Tsui Wah Restaurants in Hong Kong and China (Stores Are Packed Nearly 24 Hours a Day)

Tsui Wah at Hong Kong International Airport Tsui Wah at Fu Min Rd(Shanghai)

Tsui Wah at Central (Hong Kong) Tsui Wah at Chuanchang Rd. (Shanghai)

Tsui Wah at Xu Jia Hui Rd. (Shanghai) Tsui Wah at Yangpu Wanda (Shanghai)

28
As per March 2014 annual results. Causeway Bay store was fully renovated by Apri l 2014. Tsui Wah restaurant network:
http://www.tsuiwah.com/en/business/restaurant/branches/
29
The fi rst Tsui Wah store in Shanghai opened i n April 2009 (March 2010 fi scal year).
30
Opening of second Tsui Wah restaurant in Shanghai, PRC i n September 2010.
31
Opening of the Galaxy Casino Macau Tsui Wah restaurant i n May 2011, whi ch marked the groups expansion in Macau.


Tsui Wahs stores boast full occupancy and long lines. My multiple visits to Tsui Wah stores in Hong Kong and China have
been positive based on exceptional customer service, the variety of delicacies and quality and freshness of the meal.

8 out of 41 stores are open 24 hours with the median of Hong Kong stores is 19 hours and China is 14 hours. However,
Tsui Wah restaurants in China occupy more space than restaurants in Hong Kong, covering over 7,000 10,000 sq. ft. to
per restaurant and having between approximately 65 to 84 tables seating approx. 2-4 customers each. In Hong Kong,
restaurants are on average, 3,000 sq. ft. and generally have approx. 30 to 67 tables seating approx. 2-4 customers each.
We list the hours of opening in stores in Hong Kong and China.

Hong Kong & Macau Restaurants
32
Mainland China Restaurants
32

Central Hours Open Shenzhen Hours Open
Des Voeux Road 19 Jianshe Road 12
Wellington 24 Wanghai Road TBO
Jaffe Road 24 Guangzhou
Cannon Street 24 Tianhe Road 12
Lockhart Road, Causeway Bay 19 Shanghai
Wan Chai 20 Fumin Road 19
Aberdeen 20 Tian Yao Qiao Road 14
The Peak 14 Chuanchang Road 14
Kowloon South Xizang Road 13
Ngau Tau Kok 17 Xu Jia Hui Road 17
San Po Kong 20 Changshou Road 14
To Kwa Wan 19 Yangpu 14
Mong Kok 24 Century Avenue 14
Pak Hoi Street 20 Sichuan North Road TBO
Pitt Street 19 Hangzhou
Parkes Street 24 Hangzhou 14
Tsui Wah Concept 19 Wuhan
Tsim Sha Tsui 19 Han Street 13
Tsim Sha Tsui East 19 Luoyu Road 14
New Territories Yuncai Road TBO
Metro City Plaza 18 China Median 14
Sheung Tak 17
Chung On Street 24
Shiu Wo Street 24
Tuen Mun Tai Hing 18
Tuen Mun Ocean Walk TBO
Sha Tin 17
Tai Po 17
Tsui Wah Eatery 18
HKG Intl. Airport 17
Fu Tung Branch 18
Macau
Macau 24
Hong Kong & Macau Median 19.0
Source: Company Filings, Prospectus and Website.

Source: Company Menu and website.
32
I ncl udes restaurants coming soon or to be opened.


Tsui Wah Has Incentivized, Value Oriented Management Who Bought Shares Two Months
Ago and The Company Has A Culture of Hiring People with Passion For Food and Efficiency

Tsui Wah is run by value oriented, incentivized management with an intense focus on: return on capital, profitability
and customers. Multiple visits to stores affirm that Tsui Wah employees are people with passion and efficiency

The origin of Tsui Wah dates back to 1967 when the first Tsui Wah was opened in Mongkok by a third party. The
operations of the group began in 1989, when Chairman, Lee Yuen Hong acquired the San Po Kong Tsui Wah Restaurant
together with the founding partners listed below. As of April 2014, Tsui Wah has significant insider ownership with
approx. 62.6% owned by the founding partners. Together, they have successfully grown the business from one humble
tea shop to a iconic brand leading Cha Chaan Teng in Asia over 25 years since 1989. The founders cumulatively bring
over 190 years of experience in the restaurant industry. Tsui Wah has 3 independent non-executive directors out of a
total 8 on the board, exceeding the requirements under the Hong Kong listing rules.

Notably, insiders have been recent buyers of the stock in April at prices above current prices, acquiring 3.664mm shares
and 3.336mm shares on the secondary market at average prices of HK$4.1097 and HK$4.1935 on 22 & 23 April
respectively
33.
I am reminded by a quote by Mr. Munger Pay close attention to incentives

Name Title Industry Experience Approx. Ownership
34

Lee Yuen Hong, 59 Chairman and Co-Founder 42 years 26.4%
Ho Ting Chi, 51 Executive Director 34 years 20.5%
Cheung Yu To, 57 Executive Director 35 years 7.9%
Cheung Wai Keung, 63 Executive Director 45 years 4.7%
Cheung Yue Pui, 52 Executive Director 36 years 3.1%
Total 192 years 62.6%
Source: Company Filings, IPO Prospectus.

My multiple visits to Tsui Wah stores have reinforced that employees are
people with passion and amongst the most efficient in the quick service
industry, while maintain attentive service. Tsui Wah has a relentless focus on
hiring, motivating and retaining employees (restaurant staff, table staff,
cooks, store management, kitchen assistants, etc.) who based on my
multiple conversations with them, see Tsui Wah as a career, not just a job.
The company makes an effort to hire employees who share a passion for
food, and who will operate stores in a way that is consistent with high
standards but that allows each of their unique personalities and strengths
to contribute to the companys success.

In an effort to maintain employee loyalty and retention, Tsui Wah has an employee incentive scheme where restaurant
personnel receive bonuses, i) if the restaurant at which he or she works achieves certain performance targets, and (ii)
office personnel will receive bonuses depending on the number of restaurants that achieve performance targets. Thi s
employee incentive scheme, amongst several other factors, has been successful in motivating employees.

To ensure the experience of customers, Tsui Wah has developed a set of standardized and formal programs for
employees, including waiting staff, cashiers, floor managers, chefs and restaurant managers. Such training programs are
accredited and critically recognized by multiple Hong Kong vocational education councils.

33
Cui Fa, a company i ncorporated i n the BVI and controlling shareholder, owned approx. 48.19% by Chairman, Lee Yuen Hong, 37.35% by Executive
Di rector, Ho Ti ng Chi and 14.46% by Executive Director, Cheung Yu To. Post the purchase, Cui Fa shareholding as of April 2014 i ncreased to 54.83%.
34
Ownership % as of April 2014 as per ownership i n Cui Fa, Ample Favour and Victor Leap.
Tsui Wah has built a culture hiring motivated
people with passion who stay at the company
for a long-time and build careers at Tsui Wah


Tsui Wah offers numerous opportunities for employees, including benefits, training and activities

Source: Company filings and website.

In addition, Tsui Wahs culture helps to promote internal upward mobility, which not only increases employee retention
rates, but also produces the type and quality of management personnel needed for t he groups rapidly expanding
restaurant network. For example, restaurant waiting staff have risen through the ranks to become restaurant managers
through hard work and that the culture of Tsui Wah is one where you can build a career at Tsui Wah and not just a job.

Tsui Wahs culture of hiring people with passion helps to promote internal upward mobility


Tsui Wah Has Tangible Catalysts Ahead for Investors, With Revenue and EBIT Potentially
Doubling in 2-3 Years With High Return on Capital and Efficiency Metrics

Tsui Wah has numerous tangible growth opportunities ahead, to replicate its profitable, highly efficient and
standardized restaurant network, offering meaningful upside for long-term oriented investors

Tangible Catalysts as Tsui Wah Rolls Out Stores in China, a Market Where It is Critically Profitable with High
Return Metrics and Where It Enjoys Higher Average Pricing Than Core Market: I estimate Tsui Wah will have 80
stores by March 2017 in Hogn Kong, China and Macau, doubling current store count and revenue and EBITDA. For
each new store, the company spends approx. $1.15mm capex with an average 18 month payback earning high
returns on capital and generate significant cash flow. The company is at a key inflection point in China, a market
where it had only 7 stores out of 32 as of year ending March 2013 (Sept 2013: 9 China stores out of a total of 35
stores). In China, Tsui Wah opened 5 and 6 stores in March 2013 and 2014 respectively. It is expected to open
between 9-11 stores by March 2015, leading to a total of approx. 22-24 stores in China by March 2015, i.e. which is
3x the number of stores it had year ending March 2013. I model an additional 8 stores in China in 2016 and 2017
respectively. I believe this is rational as Tsui Wah has demonstrated the ability to profitably double its store count in
China to 13 from 7 last year and have a very long track record in chain Cha Chaan Teng. Long-term, management are
investing from IPO proceeds approx. $7.1 and $7.7mm for 2 new central kitchens in Shanghai (completed in March
2014) and Southern China (will finish in March 2015), which together can serve nearly approx. 90 restaurants.

I expect revenue % contribution of Tsui Wah in China to rise to nearly 40% by March 2015 and approx. 45% by
March 2017. In terms of store count, Tsui Wah has grown from just 11.1% of stores in China to 31.7% by March
2014. Diligence suggests that Tsui Wah enjoys significant brand recognition and Chinese customers love the food.
Although Tsui Wah restaurants in China are open at an average, 14 hours vs. 19 hours in Hong Kong, Tsui Wah
restaurants in China occupy more space than restaurants in Hong Kong, covering over 7,000 10,000 sq. ft. per
restaurant and have between approximately 65 to 84 tables seating approx. 2-4 customers each. In Hong Kong,
restaurants are on average, 3,000 sq. ft. and generally have approx. 30 to 67 tables seating approx. 2-4 customers
each. Furthermore, rent and personnel costs in China are much less than compared to Hong Kong.

Store Count Mar 2011 Mar 2012 Mar 2013 Mar 2014
Total Tsui Wah Stores 18 22 32 41
Hong Kong Stores 16 19 24 27
Mainland China 2 2 7 13
% of TW stores in China 11.1% 9.1% 21.9% 31.7%
Source: Company filings. Macau has 1 restaurant in the Galaxy Casino (http://dining.macau.com/dining/restaurants/tsui-wah-161)

Historical Store Opening in China Mar 2011 Mar 2012 Mar 2013 Mar 2014
Yangtze River Delta (primarily Shanghai) 1
35
0 4 3
Southern China (Shenzhen/Guangzhou) 0 0 0 2
Central China (Wuhan) 0 0 1
36
1
Total New Store Opening in China 1 0 5 6

China Revenue Breakdown Mar 2011 Mar 2012 Mar 2013 Mar 2014
China Revenue (US$ mm) $7.4 $10.4 $26.1 $45.9
Total Tsui Wah Revenue (US$ mm) $76.7 $97.8 $139.0 $190.2
China % of Total Revenue 9.6% 10.6% 18.8% 24.1%
China Revenue Per Store (US$ mm) $3.7 $5.2 $3.7 $3.5

35
Opening of second Tsui Wah restaurant in Shanghai, PRC. The first Tsui Wah store i n Shanghai opened in April 2009 (March 2010 fi scal year).
36
Opening of the first Tsui Wah restaurant i n Wuhan, PRC.


In addition, please see below pricing comparision of the top 10 selling items in Hong Kong and China. Tsui Wah
charges an average 12.4% higher on its top 10 selling items in China.

Below are some customer reviews of Chinese customers on Tsui Wah stores and food.

I was thrilled when I realized that Tsui Wah Restaurant is from the same establishment as the one at the Hong Kong
Airport. I had fallen in love with the Fish ball Rice Noodles when ate at the HK Airport. A friend of mine took me to
the one at Xujiahui and that dish proved to be what I had remembered it to be. The taste was exactly the same. I
took two of my friends there again and the chicken wings and fried wonton were also very good. I will try the other
dishes the next time I visit Julie from China on Tsui Wah Shanghai
37

I'm a regular visitor to Shanghai... eating out almost every evening... This is a great restaurant amongst the many in
Shanghai. Great food, great service and atmosphere. Exactly what I expected from the Tsui Wah Group. One needs
reservation either for lunch or dinner. Can't decide which dish to suggest as they are all great!! Value for money!
Visitor from Germany to Shanghai on Tsui Wah Fuming Lu Restaurant in Shanghai
38

This is loud, greasy, open all night, and oh so delicious. You will not lose weight at this joint. But you will be satisfied.
Especially after a hard night of partying! ThunderSpider on Tsui Wah Shanghai
39

Potential to Increase Hong Kong Market Share and Deepen Customer Penetration Through New and Diversified
Sales Channels Requiring Minimal Capital: While the largest Cha Chaan Teng operator in Hong Kong, Tsui Wah has
significant room to grow revenue and deepen its customer footprint in Hong Kong with relatively small incremental
investments through store count, and expanding delivery and catering services. In 2013, new restaurants were
opened at the terminal of Hong Kong International Airport, Hung To Road in Ngau Tau Kok, Shatin Plaza, Pitt Street
in Yau Ma Tei and Habour Crystal Centre in Tsim Sha Tsui East. Tsui Wah is opening a second central kitchen in Hong
Kong for the year ending March 2014 funded from IPO proceeds. It expected to be between 30,000 to 40,000 sq. ft.,
and will support nearly 50 new Tsui Wah restaurants within a radius of approx. 200km or 2 hour radius. Each such
new Tsui Wah restaurant in Hong Kong, will require, on average, capital expenditures of approx. HK$9.0 million and
have payback periods of approx. 12-18 months.

In addition to store growth, Tsui Wah identified the delivery of Cha Chaan Teng cuisine in Hong Kong to be
underserved. The company launched the business of Tsui Wah delivery serving Hong Kong where customers may
conveniently enjoy delicacies without leaving their homes. Tsui Wah plans to open 3 and 3 new centers for years
ending March 31, 2014 and 2015, respectively. Tsui Wah delivery centers will be no greater than 1,000 sq. ft. With

37
http://www.tripadvisor.com/ShowUserReviews-g308272-d3928132-r157673032-Tsui_Wah_Restaurant-Shanghai.html
38
http://www.tripadvisor.com/ShowUserReviews-g308272-d5010560-r199978659-Tsui_Wah_Restaurant_Fuming_Lu_Shanghai-Shanghai.html
39
http://www.tripadvisor.com/ShowUserReviews-g308272-d3928132-r193854573-Tsui_Wah_Restaurant-Shanghai.html
Top 10 Items in Tsui Wah China Menu Tsui Wah China Menu Price Tsui Wah Hong Kong Menu Price
Name RMB HK$ equivalent HK$ % Premium
Hainanese Chicken Rice 52 64.8 61 6.3%
Swiss Style Chicken Wings 46 57.3 53 8.2%
Signature Homemade Fish Balls w/ Rice 33 41.1 32 28.6%
Kagoshima Pork Cartilage 49 61.1 46 32.8%
Milk Tea 17 21.2 18 17.7%
12-inch French Hotdog 26 32.4 30 8.0%
Special crispy bun served w/ condensed milk 15 18.7 17 10.0%
Malaysian Beef Briskey Curry 53 66.1 61 8.3%
Shredded Pork & Mushroom w/ Fried Noodles 43 53.6 58 -7.6%
Sizzling King Prawns w/ Fried Noodles 69 86.0 77 11.7%
Average 40.3 50.2 45.3 12.4%


the smaller footprint, capital expenditure should be minimal, and much lower than for new
restaurants, which will enable Tsui Wah to replicate this model and achieve penetration very
quickly. This represents a long-term profit and growth potential for Tsui Wah and growing at
double digit growth. Tsui Wah can broaden its already strong existing customer base and
increase sales by strengthening delivery services from existing restaurants and a network of
delivery centers to reach customers in areas where existing restaurants are not located.

As captive customers, I was obviously thrilled to hear about the launch (delivery hotline
40
:
+852 2776 8833 for those interested!). The author can be seen pictured trying out a delivery
scooter on the right.

Long-Term Investments of 3 New Central Kitchens (vs. Just 1 at Time of IPO in November 2012) Provide Significant
Economies of Scale and Lay Groundwork To Support Over 110 New Restaurants for Tsui Wah: At the time of the
IPO in November 2012, Tsui Wah had just one central kitchen ( approx. 9,000 sq. ft. in Tsuen Wan, New Territories) in
Hong Kong, which was set up in 2008. Tsui Wah is laying the long-term foundation by adding 1 central kitchen in
China by year ending March 2014 and 1 central kitchen in Southern China by year ending March 2015. The new
central kitchen opening in Hong Kong, is expected to be able to support 50 new Tsui Wah restaurants. The central
kitchen in Shanghai is expected to be able to support up to 40 new restaurants. The central kitchen in Southern
China in 2015 is expected to feed another 20 Tsui Wah restaurants. Cumulatively, these three central kitchens will
be able to support over 110 Tsui Wah restaurants alone. The capital expenditure is funded from IPO proceeds, and
are long-term investments, that will support new restaurants beyond the coming 10 years. Margins which are
temporarily lower than average, will likely benefit as the companies reaps economies of scale and full utilization.

China Central Kitchen Mar 2013 Mar 2014 Mar 2015
New central kitchen openings 0 1 (Shanghai) 1 (Southern China)
Projected capital expenditure (US$mm) 0 7.1 7.7

Hong Kong Central Kitchen Mar 2013 Mar 2014 Mar 2015
New central kitchen openings 0 1 0
Projected capital expenditure (US$mm) 0 7.1 0.6
Total central kitchen openings 0 2 1
Total central kitchen capex (US$ mm) 0 14.2 8.3

The companys central kitchen centralizes, for restaurant operations, the production and distribution of semi -
processed food and processed food, including fish balls, meats, soups and sauces, and prepares the proprietary
seasonings and spices used in dishes. Tsui Wah also benefits from economies of scale by centralizing storage
function and training chefs to prepare specialized dishes. In addition, the risk of leakage of secret recipes is
significantly reduced by centralizing most of the preparatory work to chefs working in the central kitchen. Tsui Wah
minimizes the inventory needed to store (with very low inventory turns) and orders raw materials and supplies, to
the extent possible, on an as needed basis.

Continue to Enhance Comparable Restaurant Sales Growth and Profitability: Tsui Wah has grown comparable
restaurant sales in Hong Kong and China by 12.5% and 16.2%, as disclosed last in the year ended March 2012. In
March 2013 and 2014, SSSG grew 85 and 5% respectively. The company has implemented a number of initiatives to
grow SSSG, including: menu price increases (Tsui Wah has increased prices every year for the last 5 years), new
menu offerings with focus on hi gh margin products (new menu introduced this year introduced several new food
categories based on customer feedback), increase average daily revenue per restaurant and guest traffic by
improving dcor and creating a welcoming atmosphere with relentless focus on high quality, safe and fresh cuisine.

40
http://www.tsuiwahdelivery.com/tc/index.php
The author pictured
on a Tsui Wah scooter


What is Tsui Wah Worth? (Key Statistics as of June 21, 2014)

At a share price of HK$3.97 as of June 21, Tsui Wah is a great business at a fair price whose transformation has not been
fully recognized by the market. Since the IPO in Nov 2012, the companys share price appreciated to nearly a high of
HK$5.75 in Nov 2013, just under 9 months ago. Since then, Mr. Market have offered the opportunity to purchase shares
nearly 30% lower at HK$3.97 (at prices higher than where insiders have bought just two months ago).

At HK$3.97, Tsui Wah has a market capitalization of $719mm. As of Sept 2013 balance sheet, to calculate enterprise
value (TEV), I add $0mm in short term debt and current portion of finance leases, $0.01mm for non-current finance
lease payables, $0mm in minority interest and subtract $120.4 in excess cash and deposits, leading to a TEV of
$598.8mm (note: company is consistently FCF positive with negative operating working capital and mini mal capital
intensity to grow).

To estimate the normalized earnings potential of Tsui Wah, lets do some back of the envelope math. As of March 2014,
Tsui Wahs store count was 41 (27 HK, 13 China and 1 in Macau), excluding the landmark Causeway Bay store that was
renovated by April 2014. Over the last five years, stores in Hong Kong and China earned at an average, $5.0mm and
$4.0mm per unit respectively. Based on total store estimate of 55 and 68 stores by March 2015 and 2016 respectively
(management have a goal of 80 stores by March 2017), this gets us to approx. $250mm and $307mm in revenue by
March 2015 and 2016 respectively including Macau. This attributes no value to new sales channels, which Tsui Wah has
had significant success in Hong Kong and growth outside these markets as well. To triangulate at this another way,
management have previously disclosed in the IPO prospectus, that average daily revenue per comparable restaurant is
approx. HK$124,000 or US$16,000. This gets us to approx. $340mm and $428mm in revenue for 2015 and 2016
respectively. One can also derive revenue through the average number of tables, number of invoices per table per day
and average spending per invoice. Stores in Hong Kong are approx. 3000 sq. ft. with an average of 30-67 tables seating
2-4 customers each with average 25 invoices per table with average check price of $9.5. China stores are approx. 7000-
10,000 sq. ft. with an average of 65 to 84 tables seating 2-4 customers each with an average of 8 invoices per table and
an average spending price of $20. The Macau restaurant is 7,200 sq. ft. seating an average of 2 customers. This gets us
to revenue of approx. $260mm and $320mm respectively.

Based on the above, to be conservative, I will assume the lower end of the range and assume Tsui Wah has total
revenue of $250mm and $307mm for March 2015 and 2016 respectively, i.e. 31.5% and 22.8% higher. The company has
grown revenue at 35.9%, 27.5%, 42.2% and 35.9% for the four years ending March 2014. Tsui Wah has grown revenue
the last 5 years at a CAGR of 27.3%. Assuming 5 year median historical EBITDA margins of 19%, Tsui Wah will generate
EBITDA of approx. $47.5mm and $58.3mm for March 2015 and 2016 respectively. This translates to an EV/EBITDA
multiple of 12.6x for March 2015, 9 months from now and 10.3x March 2016 EBITDA. The company spends US$1.15mm
per store and has minimal maintenance capex requirements (at most $3-4mm annually) which gets us to 13.5x and
10.8x EBITDA maintenance capex multiples for March 2015 and 2016 respectively. The way I look at it, Im buying a
high quality business that is amongst the most efficient quick service restaurants selling nearly $5mm per store and that
has grown at a CAGR of 27.3% with high returns on capital at 10.8x EBITDA less capex. Tsui Wah deserves a high multiple
and indeed Ackmans Burger King presentation (page 48) on April 2012 advocates a 13x to 16x EBITDA minus capex
multiple based on a variety of factors, including unit growth, margin, SSSG growth and return on capital . Tsui Wah ranks
favorably on these factors to comparables. I estimateTsui Wah will have 80 stores by March 2017, which will double
March 2014 stores, revenue and EBITDA in 3 years, alone implying a nearly 80-100% upside in 2-3 years.

Tsui Wahs efficiency is competitive compared to even global QSR restaurants (see Appendix B of Global QSR 50 ranking
by QSR magazine), with revenue per store of US$5mm, with approx. breakeven of 1-2 months and investment payback
of 18 months. Regional Asian comparables, like Caf De Coral, Ajisen China, Fairwood, Jubilant have lower revenue and
EBIT per store as well as a lower growth profile. At current multiples, Tsui Wah offers an opportunity to buy a quality
company at a compelling price with insider ownership and recent buying meaning alignment with shareholders. Given
the 30% stock decline, Tsui Wah offers a compelling entry point for long-term investors with a 2-3 year horizon.


Risks to Investment Thesis

Future Growth Depends on Ability to Open and Profitability Operate New Restaurants in Existing and New
Markets: Tsui Wah has a target of reaching 80 restaurants in Hong Kong and China by March 2017. The company has
significant experience in the Cha Chaan Teng space and allocated significant resources and time to develop,
implement and perfect their model. Future growth depends on Tsui Wahs ability to successfully replicate their
winning formula in new markets, including the ability to find quality locations, secure approvals and permits, hire
and train skilled management and successfully management investment payback of new stores. Furthermore,
opening new restaurants may negatively affect sales at existing restaurants. Tsui Wah is well positioned to capitalize
on its iconic brand given management have had a long track record of excellent capital allocation and eat their own
cooking. The company has successfully doubled its China store count in the last year, and completed long-term
investments by opening a large central kitchen while revenue has doubled in two years. SSSG has been postive,
investment payback on average 18 months and per store revenue competitive than global QSRs. Tsui Wah is
consistently FCF positive and generates cash flow that far exceeds its capital outlay for opening new stores.

Brand and Intellectual Property: Tsui Wahs competitive position depends on maintaining the strength of its iconic
brand, loyalty of its captive customers and reputation for consistent, high quality products. As Tsui Wah continues to
grow in size, expand menu offerings and extend geographic size, maintaining quality and consistency is paramount.
In addition, the ability to implement its business plan successfully depends on the companys ability to protect its
trademarks, proprietary know-how, recipes, trade secrets and other intellectual property, including names and
logos. Tsui Wah is well positioned to capitalize on its 45 year old brand having invested significant time, effort and
resources to establish brand recognition, being the only pure play listed Cha Chaan Teng. The company is the
recipient of several awards in Hong Kong and China, and a simple search on the internet reveals hundreds of blogs
from captive customers raving about Tsui Wah. The company uses confidentiality and non-compete agreements
with key management and operating personnel and other precautionary procedures to protect proprietary know-
how, recipes and trade secrets. In addition, the risk of leakage of secret recipes is also significantly reduced by
centralizing most of the preparatory work to chefs working in the central kitchen. Tsui Wah has implemented a
detailed organization structure, with specific duties for employees, which additionally helps protect proprietary
recipes and cooking methods.

Capital Allocation: Tsui Wah management may pursue deploying free cash flow into reinvestment opportunities
that earn lower returns on capital. While this is a risk that one cannot rule out, the probability of such an event is
low, given historical track record of management who have stuck to a simple idea and taken it seriously without
losing focus on their core business. This is a quality that I look for in businesses as lack of focus on the core business
is something that is value destroying. Management have been conservative capital allocators in the past with a
religious focus on return on capital and profitability. Operating and net margins are higher than peers, and while net
margins in the recent year have declined, this is largely due to the growth ramp up in a new market, that is typical.

Risks Related to Real Estate Rental Market: Tsui Wah primarily leases properties on which its restaurants operate.
The companys inability to obtain leases for desirable restaurant locations or renew existig leases could have a
material impact on the core business. Tsui Wah has successf ully navigated this throughout its history under its
founding group with long-term lease terms of 2-10 years,with renewable options exercisable at the companys
discretion upon expiration of lease periods ranging from 2-6 years. This is evident from the companys ability to
successfully open and operate stores in landmark locations in Hong Kong, including its Lan Kwai Fong location, the
Peak, Causeway Bay, Airport, etc. Tsui Wahs efficiency metrics, including payback periods of approx 18 months on
average, provide the business with prodigious cash flow generative abliity to navigate through economic cycles.

Increase Raw Material and Wage Cost Pressures: Tsui Wah profitability depends significantly on the companys
ability to anticipate and react to changes in cost of food ingredients and wage cost pressures. The ability to source
quality food ingredients at competitive prices in a timely manner is crucial to Tsui Wah. For the four years ended


March 31, 2010, 2011, 2012 and 2013, the total purchases from i ts five largest suppliers in aggregate accounted for
30.2%, 27.0%, 23.9% and 21.8% respectively. Tsui Wah has not experienced any material delays or interruptions in
securing supply of food ingredients from key suppliers, and is consistently looking to improve its supply chain. While
expanding its restaurant network, Tsui Wah has dedicated significant resources to raising the quality standard of its
cuisine and standardisation of its food processing procedures, enhancing operating efficiency, unifying qual ity
testing and consolidating supply chain management through the establishment of central kitchens.

Food Safety and Quality Control: A multi-location restaurant business such as Tsui Wah is exposed to negative
publicity or news reports,whether accurate or not, regarding food quality, safety, etc. Any negative publicity,
whether warranted or not, could harm Tsui Wahs business and brand. The company has implemented a set of
standard operating procedures, including a comprehensive set of quality control procedures covering all levels of
operations including (i) supply chain, (ii) central kitchen, (iii) logistics and (iv) each restaurant at each stage of the
raw materials supply and food preparation process. The company places strict requirements on food safe ty as well
as on the appearance, smell and taste of food ingredients. Since 2009, Tsui Wah has engaged an independent testing
company, SGS Limited, a company with over 50 years of experience and 1,200 professionals to conduct spot checks
of food samples, so as to help ensure that food quality. The use of a central kitchen further ensures consistency in
food quality across different branches and allows us to benefit from economies of scale. Tsui Wah has a set of
restaurant quality control programs, including strict adherence to inventory level, spot-check by secret customers,
customer feedback and continuous training programs.


Appendix A: Financial Summary (as of June 21, 2014)

Consolidated Income Sheet (US$ in mm) Mar-10 Mar-11 Mar-12 Mar-13 Sep-13
Revenue 56.8 77.2 98.4 139.9 89.7
% Growth 35.9% 27.5% 42.2% -100.0%
Other income and gains 0.2 0.3 0.3 0.7 1.1
Cost of inventories sold -17.3 -23.6 -30.5 -42.8 -27.1
% of revenue 30.4% 30.6% 31.0% 30.6% 30.2%
Gross profit 39.7 53.8 68.2 97.8 63.7
% of revenue 70.0% 69.7% 69.3% 69.9% 71.0%
Staff costs -15.7 -21.0 -25.5 -37.0 -24.8
% of revenue 27.7% 27.2% 25.9% 26.4% 27.7%
Depreciation -1.9 -2.9 -2.8 -5.3 -3.7
% of revenue 3.4% 3.7% 2.9% 3.8% 4.1%
Property rentals and related expenses -5.9 -9.7 -12.4 -19.7 -11.7
% of revenue 10.4% 12.5% 12.6% 14.1% 13.1%
Fuel and utility expenses -3.3 -4.1 -4.5 -6.4 -4.4
Advertising and marketing expenses -0.4 -0.4 -0.4 -0.8 -0.3
Other operating expenses -3.8 -5.3 -6.4 -10.4 -6.4
Finance costs -0.05 -0.01 -0.02 -0.01 0.00
Share of profits less losses of JCE 0.2 0.2 1.1 2.8 2.3
Equity-settled share option expense 0.0 0.0 0.0 -0.7 -1.1
EBITDA 10.7 13.6 20.2 25.7 17.1
% of revenue 18.9% 17.7% 20.5% 18.4% 19.0%
EBITDAR 16.6 23.3 32.6 45.4 28.8
% of revenue 29.2% 30.2% 33.1% 32.5% 32.1%
EBIT 8.8 10.8 17.3 20.4 13.4
% of revenue 15.4% 14.0% 17.6% 14.6% 14.9%
Profit before tax 8.7 10.8 17.3 20.4 13.4
% of revenue 15.4% 14.0% 17.6% 14.6% 14.9%
Income tax expense -1.3 -2.0 -3.1 -3.5 -2.3
Net Profit 7.4 8.8 14.2 16.9 11.0
% of revenue 13.0% 11.4% 14.5% 12.1% 12.3%
Attributable to:
Owners of the Company 6.9 8.4 13.4 16.7 11.0
Non-controlling interests 0.5 0.4 0.8 0.2 0.0
Net Profit 7.4 8.8 14.2 16.9 11.0


Appendix A: Financial Summary (continued) (as of June 21, 2014)

Consolidated Balance Sheet (US$ in mm) Mar-10 Mar-11 Mar-12 Mar-13 Sep-13
Inventories 0.4 0.9 1.2 1.7 2.1
Trade receivables 0.1 0.1 0.4 0.7 0.8
Prepayments, deposits and other receivables 1.6 1.4 4.3 4.3 5.0
Due from directors 10.7 12.6 12.8 0.0 0.0
Due from related companies 14.3 17.9 18.2 0.0 0.0
Pledged time deposit 0.0 0.0 0.0 0.1 0.1
Pledged time deposit with original maturity > 3m 0.0 0.0 0.0 0.1 0.1
Cash and cash equivalents 5.0 8.1 11.9 118.3 120.2
Total current assets 32.1 41.0 48.8 125.1 128.2

Property, plant and equipment 3.5 5.9 11.3 19.1 21.6
Investments in jointly-controlled entities 0.6 1.3 2.2 4.1 3.8
Non-current rental deposits 0.6 2.3 2.5 4.1 4.3
Prepayments for PPE 1.2 0.0 0.0 0.4 2.4
Deferred tax assets 1.0 0.9 0.8 1.0 1.1
Total non-current assets 6.9 10.5 16.8 28.6 33.2
Trade payables 2.9 3.7 5.0 7.1 8.7
Other payables and accruals 3.5 4.4 6.4 11.3 13.0
Interest-bearing bank and other borrowings 0.0 1.7 0.0 0.1 0.1
Due to directors 3.3 4.2 5.8 0.0 0.0
Due to related companies 10.2 11.4 10.2 0.0 0.0
Tax payable 0.9 0.8 1.8 1.2 2.3
Total current liabilities 20.9 26.1 29.2 19.7 24.0
Interest-bearing bank and other borrowings 0.0 0.1 0.0 0.1 0.1
Deferred tax liabilities 0.0 0.1 0.1 0.1 0.0
Total non-current liabilities 0.0 0.1 0.1 0.2 0.1
Equity attributable to owners
Issued capital 0.0 0.0 0.0 1.8 1.8
Reserves. 16.5 23.3 33.4 132.0 135.4
Non-controlling interests 1.6 1.9 2.9 0.01 0.01
Total equity 18.1 25.2 36.2 133.8 137.2


Appendix B: Global Quick Service Restaurants (Source: QSR Magazine Top 50 Ranking)

('000s USD per store) Systemwide U.S. Sales / Store
Firm Name 2008A 2009A 2010A 2011A 2012A Median
McDonald's 2,293.00 2,350.00 2,400.00 2,500.00 2,600.00 2,180.48 $
Wendy's 1,450.00 1,422.00 1,418.00 1,456.00 1,483.80 1,364.68
Burger King 1,260.00 1,240.00 1,230.00 1,248.00 1,195.00 1,183.84
Subway 445.00 445.00 452.00 469.00 481.00 415.94
Taco Bell 1,241.00 1,229.00 1,288.00 1,284.00 1,363.00 1,220.73
Pizza Hut 854.00 786.00 855.00 875.00 883.00 822.73
KFC 967.00 960.00 933.00 940.00 957.00 958.50
Starbucks 985.00 952.00 1,060.00 1,140.00 1,223.00 959.68
Dunkin' Donuts 865.00 820.00 839.00 850.00 857.40 839.50
Domino's Pizza 595.00 598.00 657.00 679.00 710.20 630.16
Arby's 1,436.00 897.00 838.00 854.00 993.20 886.52
Sonic 1,125.00 1,093.00 1,023.00 1,037.00 1,074.00 1,039.45
Jack in the Box 1,439.00 1,420.00 1,322.00 1,331.00 1,379.00 1,326.50
Dairy Queen 530.00 530.00 540.00 545.00 545.00 528.05
Hardee's 956.00 1,002.00 1,054.00 1,100.00 1,145.00 954.45
Chick-fil-A 2,034.00 2,095.00 2,694.40 2,893.50 3,157.90 1,984.36
Papa John's 751.00 755.00 863.00 786.00 829.00 744.04
Popeye's 1,007.00 1,057.50 1,053.00 1,133.80 1,242.00 1,000.61
Quiznos 375.00 415.00 420.00 345.00 345.00 405.41
Carl's Jr. 1,385.00 1,438.00 1,375.00 1,400.00 1,470.00 1,338.01
Panera Bread 2,002.00 2,081.00 2,200.00 2,304.30 2,427.20 1,937.20
Little Caesars 455.00 450.00 460.00 465.00 465.00 462.50
Long John Silver's 670.00 660.00 655.00 670.00 794.00 670.00
Whataburger 1,645.00 1,679.00 1,709.00 1,801.00 1,996.00 1,601.96
Church's Chicken 712.00 680.00 695.00 698.60 706.50 679.89
Boston Market 1,142.00 1,020.00 1,015.00 1,102.00 1,184.00 1,100.52
Panda Express 1,090.00 1,023.00 1,093.50 1,157.00 1,237.00 1,034.31
Checkers/Rally's 793.00 814.00 830.40 852.00 903.40 797.37
Steak n Shake 1,390.00 1,500.00 1,590.00 1,650.00 1,700.00 1,506.91
Baskin-Robbins 213.00 218.00 220.00 200.00 207.10 210.05
Captain D's 871.00 839.00 819.00 832.00 903.00 870.58
Buffalo Wild Wings n.a n.a n.a n.a n.a 1,841.66
White Castle 1,378.00 1,304.60 1,300.00 1,250.30 1,284.20 1,302.30
Chipotle 1,760.00 1,728.00 1,800.00 2,013.00 2,113.00 1,645.25
Del Taco 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00 1,100.00
Sbarro 638.00 645.00 623.00 690.00 n.a 638.00
CiCi's Pizza 949.00 909.00 906.00 895.40 915.00 903.00
El Pollo Loco 1,672.00 1,600.00 1,400.00 1,425.00 1,475.00 1,453.38
Bojangles' 1,590.20 1,556.40 1,573.30 1,600.10 1,717.50 1,503.84
Culver's 1,681.00 1,630.00 1,641.20 1,712.90 1,837.50 1,634.50
Krystal 1,120.00 1,078.00 1,036.00 1,121.00 n.a 1,078.00
Papa Murphy's 554.80 560.20 538.50 559.50 574.90 508.16
Fazoli's n.a n.a n.a n.a n.a 983.00
Einstein Bagels 919.00 874.00 988.00 884.00 n.a 793.00
Fuddruckers n.a n.a n.a n.a n.a 1,396.50
In-N-Out Burger 1,940.00 1,950.00 1,925.00 1,925.00 1,935.00 1,910.78
Baja Fresh Mexican Grill n.a n.a n.a n.a n.a 1,168.56
Hot Stuff Pizza n.a n.a n.a n.a n.a 181.12
Jamba Juice 678.40 n.a n.a n.a 714.70 678.40
Cold Stone Creamery 336.00 325.00 344.00 n.a n.a 344.00
Jason's Deli 2,290.00 2,194.00 2,226.60 2,200.00 2,556.40 2,296.05
Blimpie Subs n.a n.a n.a n.a n.a 200.00
Zaxby's 1,557.00 1,581.00 1,548.00 1,597.20 1,765.70 1,569.00
Jimmy John's 698.00 688.30 753.00 821.80 878.80 725.50
Qdoba 1,034.00 905.00 883.00 961.00 966.00 963.50
Tim Hortons 930.00 957.00 978.00 1,069.00 1,095.00 978.00
Five Guys n.a 1,100.00 1,139.00 1,156.00 1,049.00 1,119.50
Krispy Kreme n.a n.a n.a 2,290.00 2,428.00 2,359.00
Moe's Southwest Grill n.a n.a n.a n.a 1,102.50 1,102.50
Wingstop n.a n.a n.a n.a 902.00 902.00
Median 1,020.50 $ 1,011.00 $ 1,029.50 $ 1,101.00 $ 1,101.25 $ 991.81 $
Source: QSR Magazine Top 50 Ranking


Appendix C: 10 Fun Facts About Tsui Wah

1. Tsui Wah does not charge a service charge at any of their restaurants (except during Chinese New Year)

2. Tsui Wah is open for business 365 days a year (Tsui Wah even delivers during Hong Kongs Typhoon 8)

3. Tsui Wah raises prices consistently every year (customers like us are only happy to pay up)

4. Tsui Wahs Lan Kwai Fong location on Wellington Street, is the landmark store for the company, opening in
1988. I hear that this is the place Hong Kong ends up at 3 or 4am after a night out.

5. Tsui Wah co-founder, Lee Yuen Hong, started his journey over 40 years ago as a humble delivery boy and cook in
the caf. He and the founding team have preserved on a simple idea and taken it seriously.

6. Tsui Wah has nearly 170 dishes and drinks you can order from their menu. I managed to sneak out menus from
the Hong Kong and Shanghai stores and attach it with this write up.

7. Customers can have breakfast, lunch, dinner, tea, dessert and even a 2am snack all under one roof at Tsui Wah.
This means, stores are always packed maximizing revenues.

8. The Tsui Wah line in the Hong Kong airport is longer than the other restaurants at the airport (including
McDonalds, Caf De Coral, etc.)

9. One of the signature dishes of Tsui Wah is the Champagne Style Milk Tea

10. There are over 100 blogs on the internet written by captive customers about Tsui Wah. Almost all of the reviews
are positive.

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