From hotpot to jackpot: Haidilao founding couple’s fortune still worth US$7 billion as stock comes off the boil on debut

Haidilao shares surge up to 10 per cent before Hong Kong’s fifth largest float loses steam, but still end slightly higher

PUBLISHED : Wednesday, 26 September, 2018, 12:55pm
UPDATED : Wednesday, 26 September, 2018, 11:01pm

Zhang Yong, CEO of hotpot chain Haidilao, and his wife saw their combined stake in the business fall by US$7 million on the IPO’s trading debut, but it was still worth a cool US$7 billion at market close, even as investors took some profit following an initial surge.

China’s largest hotpot restaurant chain – one of the country’s most popular, which serves up boiling soup broth with meat, seafood, vegetables and noodles – briefly jumped 10 per cent to hit HK$19.64 in early trading, with a peak market cap of HK$104 billion (US$13.3 billion).

The surge pushed the founding couple’s 57.7 per cent stake past HK$60 billion in value for a moment.

But shares lost steam in later trading, before ending at HK$17.82, only slightly higher than its IPO price of HK$17.80.

The couple’s interest had also fallen to HK$54.5 billion by market close.

“The company has a high valuation [at current share prices] and is even more expensive than tech stocks, so I am not surprised to see profit taking bring its shares back to near the listing price,” said Louis Wong Wai-kit, director of Phillip Capital Management.

“It could be under pressure for the rest of the week. I think it will be a test for the share price to hold above the listing price.”

The company is currently valued at HK$94.4 billion and has an estimated price-to-earning ratio of 70 times based on its net profit last year. In contrast, Hong Kong-listed catering and restaurant service companies have PE ratios between 2 to 55 as of Wednesday’s market close.

Fellow co-founders Shi Yonghong and his wife Li Haiyan also saw their combined 27.3 per cent stake hit HK$25.7 billion in value, down from an intra-day peak of HK$28.4 billion.

Haidilao was launched in Jianyang city, Sichuan province in 1994. It is part of a catering empire, controlled by the two couples, that includes Yihai International, a spin-off condiment unit of Haidilao which floated in Hong Kong two years ago two years ago, and Beijing U-ding-u Catering, a mainland-listed firm selling Sichuan Maocai, a meat and vegetables stew-like dish.

Haidilao has five cornerstone investors. Hillhouse Capital and Greenwoods Asset Management have committed US$90 million each. Morgan Stanley Asia and Morgan Stanley Investment jointly took a stake worth US$80 million, and Snow Lake Capital and Ward Ferry invested US$80 million and US$35 million, respectively.

Haidilao’s product is pretty unique. It’s best know for its signature Sichuan-style spicy dish, but also offers alternative services such as free manicures and shoe-polishing for waiting customers.

It has expanded its operations rapidly to cater to a growing middle-class whose consumption is considered an integral part of China’s new-economy sector.

It has a sprawling network of 363 restaurants across mainland China, Hong Kong, the US, Taiwan, Singapore, Japan, and South Korea, according to its prospectus.

It generated interim revenue this year of 7.3 billion yuan (US$1 billion), up 54.4 per cent, with net profit increasing 17 per cent to 647 million yuan during the six months.

Chinese hotpot giant Haidilao starts book building for Hong Kong IPO as it seeks up to US$1 billion

Funds raised from the IPO will be used by Haidilao to repay debt, finance expansion, and develop new technology and projects to enhance food safety and its customer experience, the prospectus showed.

Its IPO has arrived during a sluggish period for the stock market.

Hong Kong stocks have recently entered bear market territory, as the Hang Seng Index reached an intra-day low of 26,613 earlier this month, down more than 20 per cent from its recent high of 33,484 on January 26. It has had a modest rebound since then, closing up 1.2 per cent at 27,816.87 on Wednesday.

The 10 biggest IPOs in the past 12 months are all trading below their offer prices. They are: China Tower, Xiaomi, ZhongAn Online P&C Insurance, Ping An Good Doctor, China Literature, Jiangxi Bank, BeiGene, Yixin Group, Gansu Bank, and Razer.