Hotpot IPO looks too mild without China spice

Haidilao International Holding

17/05/2024 03:47

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Robyn Mak
       HONG KONG, May 17 (Reuters Breakingviews) - A Sichuan
hotpot chain known for free manicures and massages while diners
wait to be seated has a recipe for Chinese firms going global.
The only problem: it may be too bland for investors' taste.
    Super Hi International  9658.HK  was spun out of $14 billion
Haidilao International  6862.HK  in a Hong Kong listing at the
end of 2022. At the time, the firm, which operates the popular
chain in Singapore, Malaysia, the United States and elsewhere,
listed its shares in the Asian financial hub without raising any
new funds. The $1.3 billion Super Hi is now adding a second
listing in New York via a $53 million initial public offering.
    Though Super Hi is still controlled by its former parent's
husband-and-wife founders, it has distanced itself from its
Chinese roots. The company is incorporated in the Cayman Islands
and headquartered in Singapore; it says it does not have any
"restaurant business operations" in Greater China and only one
executive resides in the People's Republic. The word "China"
only appears 52 times in its U.S. listing prospectus, versus
over 300 times for "Singapore". 
    It's part of a rising trend as companies such as
TikTok-owner ByteDance and the China-founded Singapore-based
fast-fashion group Shein encounter intensifying scrutiny and
suspicion abroad. The online retailer is stepping up
preparations for a London listing after its New York float hit
regulatory hurdles and pushback from U.S lawmakers, Reuters
reported earlier this month, citing people familiar with the
matter. Rival app Temu's Chinese parent, PDD  PDD.O , which is
Nasdaq-listed and incorporated in the Cayman Islands, relocated
its headquarters to Ireland last year.
    Yet as a standalone company, Super Hi looks less appetising
than Haidilao. The smaller group benefits from ties to its
former parent, including brand licenses and agreements to buy
hot pot soup flavouring and condiments from a supplier
controlled by Haidilao's founder. But financially, it lacks a
punch. Super Hi only turned profitable last year, and sales
growth is forecast to slow to 19% this year and 14% in 2025,
down from 23% in 2023, per LSEG. It is also less profitable than
its former parent, with operating profit margins expected to dip
to 12% in 2025, versus Haidilao's 14%. That may explain why the
latter's enterprise trades on 11 times forecast next year's
EBITDA, above Super Hi's 9 times.   
    Swapping Chinese spice for something more plain vanilla
might backfire.
    Follow @mak_robyn on X
    
    CONTEXT NEWS
Hong Kong-listed Super Hi International, which operates Chinese
hotpot restaurant chain Haidilao outside greater China, raised
$52.7 million in its New York initial public offering, the
company said on May 17.
    As part of the deal, Super Hi sold roughly 2.7 million
American Depositary Shares at $19.56 each, a 9.8% discount to
the closing price of its Hong Kong shares on May 16.
    Singapore-based Super Hi was spun off from Haidilao
International in 2022 when it listed in Hong Kong as an
independent company. Its major shareholders include Haidilao's
founder Yong Zhang and his spouse Ping Shu, the chair of Super
Hi. They own more than 50% of the shares in the firm.

 (Editing by Antony Currie and Aditya Sriwatsav)
 ((For previous columns by the author, Reuters customers can
click on  MAK/   
robyn.mak@thomsonreuters.com; Reuters Messaging:
robyn.mak.thomsonreuters.com@reuters.net))