• Main Sichuan-style hotpot chain Yang Guofu has filed for a Hong Kong IPO, extending a latest collection of restaurant itemizing functions
• Firm has expanded quickly utilizing a franchise mannequin, however poses investor danger attributable to its nature as a family-run enterprise
By Jose Qian
A few new restaurant IPOs in Hong Kong are actually “hotting up” the marketplace for a mode of spicy hotpots which might be the most recent eating craze in China.
First spicy seafood hotpot specialist QiXinTian filed for a list in January, and now Shanghai Yang Guofu Enterprise Administration (Group) Co. Ltd., which makes a speciality of a Sichuan spicy and numbing mixture referred to as malatang, has adopted swimsuit with its personal software. Each corporations are hoping to wow traders with latest fast expansions that they hope will inflate not solely their retailer counts but in addition their valuations.
QiXinTian, China’s No. 3 hotpot chain, has doubled its restaurant rely in lower than two years, in response to its listing application initially of the yr. Yang Guofu can also be rising quickly, including a median of three new eating places day by day during the last three years, in response to Canyan Knowledge. As of final September, Yang Guofu had 5,783 shops, together with 18 in Australia, Canada, South Korea, the U.S., Japan and Singapore.
There’s no clear market valuation for Yang Guofu simply but, as the corporate has by no means turned to main non-public traders for funding. However earlier unsourced experiences mentioned the corporate lately scared off non-public traders with its hopes for a 20 billion yuan ($3.1 billion) valuation.
China’s malatang market was price 133.7 billion yuan in 2021, and is predicted to develop to 197.3 billion yuan in 2025, representing an annual development charge of 11.5% over that point, in response to Yang Guofu’s IPO prospectus filed late final month. The corporate sees potential in bringing its standardized format to the sector, citing third social gathering knowledge exhibiting market share commanded by such chains is predicted to develop from 22.5% in 2021 to 26% in 2025.
Whereas smaller chains like Shenzhen-based FOOOK and Shanghai-based Xiaomanjiao are additionally absorbing investor money, Yang Guofu’s major rival within the spicy world of malatang is a series referred to as Zhang Liang. As of mid-2021, Zhang Liang had 5,800 shops in 299 cities worldwide, making it the one rival with greater than 1,000 shops.
Each manufacturers have expanded quickly utilizing a franchise mannequin centered on China’s second- and third-tier cities. Yang Guofu depends closely on managing an exterior provide chain, whereas Zhang Liang produces primarily in-house. Which means Yang Guofu is extra worthwhile, however at the price of some product and high quality management.
In line with its prospectus, Yang Guofu’s income shrank from 1.18 billion yuan in 2019 to 1.11 billion yuan in 2020, principally probably attributable to results of China’s pandemic when many eating places had been shuttered for months. However the determine rebounded to 1.16 billion yuan within the first 9 months of final yr as enterprise returned to extra regular ranges. Its revenue adopted the same sample, falling from 181 million yuan in 2019 to 169 million yuan in 2020, earlier than rebounding to 202 million yuan within the first 9 months of final yr.
Yang Guofu’s common order per buyer totaled 29.3 yuan within the first 9 months of final yr, its prospectus confirmed. By comparability, the determine for top-tier cities like Shanghai and Shenzhen is round 40 yuan, in response to takeout eating platform Meituan.
The final two years haven’t been type of the broader hotpot business, largely attributable to pandemic-related restrictions but in addition partly attributable to overly aggressive expansions that led some chains to open much less worthwhile shops of their rush to develop. Within the first half of 2021, Xiabuxiabu (0520.HK) misplaced greater than 40 million yuan, and business chief Haidilao (6862.HK) is predicted to report a whopping web lack of 3.8 billion yuan to 4.5 billion yuan for 2021.
Firm founder Yang Guofu as soon as mentioned in an interview the success of the chain bearing his title owes partly to opportunistic retailer openings through the pandemic. He mentioned that in that point the corporate aggressively hunted for high-quality retailers that had been beforehand unavailable, permitting it to shortly open new shops in prime places.
Malatang is from Sichuan, however Yang Guofu has its roots in Northeast China. Founder Yang tried his hand at sheep herding and rubbish gathering earlier than beginning his culinary profession promoting avenue meals along with his spouse in 2003 in Bin county, a satellite tv for pc metropolis of Harbin. He modified his malatang with touches to swimsuit native palates, and his enterprise shortly boomed. His first batch of franchisees had been family members and mates from his hometown.
The corporate moved its headquarters to Shanghai in 2015, and opened its first abroad franchise in Vancouver two years later, adopted by shops in Melbourne and Tokyo in 2018. Regardless of its fast enlargement, Yang Guofu has by no means turned to high-profile non-public financings earlier than, partially as a result of its asset-light franchise mannequin required much less money.
Along with in-store consumption, Yang Guofu, like lots of China’s main restaurant operators, has found massive cash in takeaway eating through the pandemic. China’s malatang takeaway market has quickly grown from about 5.5 billion yuan in 2016 to about 34.8 billion yuan in 2020, and is predicted to achieve 70 billion yuan in 2025. Malatang is nicely suited to such eating, as its preparation time is brief and packaging of elements like soup base and seasonings are usually easy and commonplace.
Whereas the franchise mannequin has helped Yang Guofu to manage prices and shortly develop, it additionally carries its personal inherent dangers. Inspectors from China’s market regulator visited greater than 3,000 of the corporate’s shops nationally final July amid a collection of meals security scandals surrounding the broader hotpot business. Because of this, greater than 800 of Yang Guofu’s shops had been ordered to make “rectifications,” whereas 5 had been warned and 24 had been positioned on file for investigation.
As a typical household enterprise, Yang Guofu is a comparatively high-risk enterprise, in response to consultants, who cite points like insider management that could be trigger for investor considerations. Earlier than the IPO, Yang and his spouse every held 38.79% of the corporate, and their son holds many of the relaxation with a 19.39% stake. The corporate’s key administration positions are additionally all held by Yang relations. Yang informed monetary publication Caijing that the corporate will promote about 15% of its shares to traders within the IPO.
Yang Guofu’s itemizing comes as broader competitors in China’s catering business is heating up. As Haidilao’s case has proven, fast expansions could be dangerous. Haidilao was as soon as an investor favourite, serving to it elevate $963 million in its Hong Kong IPO in 2018. The corporate’s income surged 59.5% in its first yr as a publicly traded firm to almost 17 billion yuan, fueling an urge for food for enlargement that noticed it open greater than 500 shops within the following two years.
However its alternative of recent places would later show doubtful, and it closed 300 eating places in November final yr in a shift to concentrate on high quality over amount. Rival Xiabuxiabu equally shuttered 200 eating places final yr, conceding it had additionally expanded too aggressively.
This text was submitted by an exterior contributor and should not symbolize the views and opinions of Benzinga.