Hotpot IPO may offer a tasty dip

Xiabuxiabu Catering Management (China) Holdings

06/06/2018 04:02

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Christopher Beddor
    HONG KONG, June 6 (Reuters Breakingviews) - Sichuan hotpot
is a spicy dish, and the debut of one of the China’s top
purveyors may be just as blistering. Restaurant chain Haidilao
International is getting ready to list in Hong Kong in a mooted
$700 million offering later this year. It has dealt adeptly with
hygiene scandals and is a splash with local consumers. A push
into smaller cities is also something for investors to get
excited about. 
    Haidilao is known as much for its tasty cuisine as excellent
customer service. It offers foodies entertainment, massages and
complimentary manicures while they wait for a table. Last year,
when local media published photos of dirty and rat-plagued
kitchens, executives quickly pledged to fix the problems and
started livestream feeds to show customers the kitchens. The
response drew plaudits from consumers.
    The next challenge is to win over investors. They may
compare it to Xiabuxiabu Catering Management  0520.HK , a
slightly more down-market chain with less revenue but similar
growth and margins. The $2 billion Hong-Kong listed company
trades at a bit more than 30 times trailing earnings – roughly
the same multiple that Yum Brands  YUM.N  paid for another
chain, Little Sheep, back in 2011 – and 3.7 times its sales.
Both metrics would peg Haidilao at a ballpark $6 billion market
value. 
    The proceeds from the listing will go to finance its
breakneck expansion: the company plans to add up to 220
locations this year, an 80 percent increase on the 273 stores it
boasted at the end of last year. Haidilao makes much of a push
abroad, though it remains unclear whether the labour-intensive
customer service model can thrive in high-wage countries. 
    More promising is the company’s potential to soak up surging
demand in smaller cities: over 80 percent of its restaurant
revenue growth last year hailed from so-called second-tier
cities and below and there’s no obvious signs that the market is
near saturation. 
    The growing popularity of branded chains in the mainland’s
deeply fragmented restaurant market should provide some extra
flavour as well. With relatively few listed Chinese food and
drink companies, Hong Kong’s next serving of hotpot should go
down a treat.  
    On Twitter https://twitter.com/cbeddor
    
    CONTEXT NEWS
    - Chinese hotpot restaurant chain Haidilao International is
preparing for an initial public offering in Hong Kong, a filing
published on May 17 shows. 
    - Reuters had reported earlier that the company may aim to
raise up to $700 million through a listing, which could come in
the second half of the year. 
    - Haidilao plans to use 60 percent of the IPO proceeds to
finance its expansion plans. 
    -  For previous columns by the author, Reuters customers can
click on  BEDDOR/ 
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Filing    http://www.hkexnews.hk/APP/SEHK/2018/2018051601/Documents/SEHK201805170005.pdf
IFR: Hotpot chain Haidilao files for Hong Kong IPO   
 urn:newsml:reuters.com:*:nL3N1SP1VO
Haidilao to tap demand for Chinese hotpot with up to $700 mln
IPO -sources     urn:newsml:reuters.com:*:nL8N1RM0A3
BREAKINGVIEWS- Yum China looks appetising despite iffy pizza   
 urn:newsml:reuters.com:*:nL4N1PY15G
BREAKINGVIEWS- McDonald’s boldly supersizes its China strategy  
  urn:newsml:reuters.com:*:nL4N1KU2ZQ
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Una Galani and Katrina Hamlin)
 ((christopher.beddor@thomsonreuters.com; Reuters Messaging:
christopher.beddor.thomsonreuters.com@reuters.net))