Restaurant chain South Beauty may relaunch IPO next year

A cool response from Hong Kong investors to South Beauty, a Beijing-based restaurant operator, likely arose because of the erratic revenues reported by the upscale restaurant chain, say analysts, but the company plans to come back for a second bite at a stock market listing.

Also of concern, they said, was a lack of standardised food processing by the restaurant, and declared income that could be too easily manipulated if customers do not request receipts.

And like many other restaurant operators, the high rental expenses declared by the listing candidate was a worry, since it holds no meaningful commercial property assets to hedge against rapidly rising property prices in the bigger cities on the mainland.

After scrapping its original bid to list on the local market because of poor investor interest, South Beauty may relaunch its Hong Kong initial public offering in the second quarter of next year, two sources familiar with the situation told the South China Morning Post. It wanted to raise as much as US$200 million in the third quarter of this year after the Hong Kong stock exchange approved its listing plan.

According to the sources, a handful of investors could not properly gauge the day-to-day operations and profit-and-loss structure of the restaurant chain business because the business model was not based on high volume traffic, such as that passing through fast-food outlets such as McDonald's and KFC.

But an analyst said lack of standardisation in China's food and services business had always been the biggest hurdle for listing hopefuls.