Hong Kong diners don't mind paying a little extra for the best Cantonese snacks, but upcoming listings by two local chains - Tsui Wah Restaurant and Tai Hing Roast - may not tickle everyone's palate.
Traders said the two tea restaurants had unique qualities that separated them from other listed fast-food chains, but that investors would still focus on their chances of survival in a tough retail environment.
Tsui Wah would be the first local tea restaurant to go public, and Tai Hing would be the first Cantonese-style roasted meat specialist to list, should the deals proceed.
Louis Tsui Ming-kwong, a director of VC CEF Brokerage, questioned whether Tsui Wah and Tai Hing could maintain or increase profit margins, in the face of high rents, rising inflation and wages, as well as increases in raw material costs, even if they expanded their networks.
Existing listed restaurant operators and fast-food chains including Cafe De Coral have complained of cost pressures.
In its last interim report, Cafe De Coral said total turnover rose 10 per cent to HK$2.9 billion, but net profit fell 15 per cent year-on-year to HK$191 million.
It now has 90 shops, 15 institutional catering units and eight outlets of its premium line The Spaghetti House. It also has more than 100 stores on the mainland.
Tsui Wah now has 23 outlets, including one in Macau, and two in Shanghai. Tai Hing has 53 shops, including 11 in Beijing, Shenzhen, Shanghai and Hangzhou.
Arthur Kwong, head of Asia-Pacific equities at BNP Paribas, said Tsui Wah's business model had generated strong cash flows, and it might carve out a niche market in the mainland where consumers might find Hong Kong-style tea restaurants a novelty.
But he said investors would scrutinise how Tsui Wah is going to spend its proceeds on business expansion, especially as none of its peers has ever had to raise funds for this purpose. 'Investors are still watchful of small and medium size private companies after the spate of resignations of auditors from the listed SMEs,' Kwong said. Investors would simply refuse to invest in listings where the proceeds would mainly go to the owners' pocket instead of the business, he added.
Tsui Wah Restaurant Group has yet to say what it will do with any IPO proceeds, which could be as much as US$200 million. Chairman Lee Yuen-hong said yesterday that no timeline or listing details were available.
Tai Hing has yet to announce its deal size and IPO timing.