DPC Dash (HKG: 1405) shares are up 13% in Hong Kong today. This adds to the strong rise both since the IPO earlier in the year and since the first set of results a month or so back. There’s a certain amusement here as an Italian food for the poor manages to become one of the best selling comestibles around the world. And pizza really did start out as that - the origin is the Neapolitan slums, a way of using up old bread for the poor to have a meal from. But hey, if peasant food works it works, so why not?
DPC Dash is the Domino’s Pizza franchisee for China: “Master franchisee of Domino’s Pizza in China, Hong Kong and Macau, DPC Dash, has announced that it has boosted its store count in China to 656 as of 31 May 2023. The company said it has built on Domino’s business model by localising its key features for China and its consumers.
The business model focuses on serving pizzas to Chinese consumers through online channels, with an emphasis on delivery enhanced by technology. DPC Dash believes the model will help expand the brand’s presence throughout China.”
Neither bread nor cheese - in fact any dairy products - have historically been part of the Chinese diet so we think that’s pretty good.
The target at the moment is breakeven. “With the latest financial year loss of CN¥223m and a trailing-twelve-month loss of CN¥118m, the HK$7.9b market-cap company alleviated its loss by moving closer towards its target of breakeven. The most pressing concern for investors is DPC Dash's path to profitability – when will it breakeven?”
DPC Dash share price from Google Finance
The IPO was back there in the early part of the year. That stock price bounce starting in late August was from the first set of results.
The issue isn’t that the stores are unprofitable. Each seems to be doing well as it opens. It’s that the company is carrying a large overhead - the marketing and infrastructure budgets are for a much larger operation. So the question is really how quickly can the company open stores and so grow into its cost base? That is, a new store contributes to gross margin, but the central expenses are very high. Therefore they need many stores making gross profit to cover all expenses.
The answer seems to be that they can build out the store footprint quickly - net profit shouldn’t be far behind therefore. That, at least, seems to be the calculation behind the rise in the DPC Dash share price.