Banquet operator's listing via placement in the spotlight

In finance-centric Hong Kong, where creative bankers and self-made rich entrepreneurs are constantly offering unique businesses to grab investors' attention, a newly listed company - a local restaurant bidding to become a full-service banquet operator has commanded interest despite its non-financial profile.

The U Banquet Group, a local firm that was listed on the Growth Enterprise Market board by placement last week, is profit-making with a sound operating business model, even though net profit for the first seven months of the year fell to HK$1 million from HK$1.5 million.

No one would argue that a company with slowing profit is not suitable for listing as long as there is demand for the shares. However, U Banquet paid HK$5.7 million in fees to handle the listing, which is about five times its seven-month net profit for the year, raising questions beyond the standard answers of raising fresh capital for expansion and providing an instant cash reward for its key shareholders.

After the unusual size of its listing fees given its relatively small size, U Banquet eventually raised just HK$32.1 million by selling 50 million new shares and 50 million old shares through its chairman.

Net profit margin was just 0.5 per cent in July from 7.3 per cent in December last year, while operating margin also dropped sharply to 2.7 per cent from 9.6 per cent for the same period.

Another, more intriguing point is the firm's net current liabilities, which surged to HK$51.8 million in October from HK$17.7 million in July, after a HK$37.8 million dividend paid to key shareholders.