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BUSINESS & TECH

Haidilao Prices Shares at Top of Range Before Wednesday's IPO

Photo: VCG
Photo: VCG

Haidilao International Holding Ltd. has priced its shares at the top of their range ahead of its hotly anticipated initial public offering (IPO) in Hong Kong on Wednesday, suggesting that trade war jitters have not spoiled investors’ appetite for China’s most popular hot pot chain.

The company confirmed the HK$17.80 pricing in a filing with the Hong Kong stock exchange today. It puts Haidilao on course to raise about HK$7.27 billion ($930.4 million) when its shares begin trading on Wednesday. This would give the company a valuation of around $12 billion, greater than all other Hong Kong-listed restaurants combined.

The figure suggests investors remain convinced of the company’s growth prospects despite generally weak markets deflated by fears of further fallout from ongoing trade tensions with the U.S.

Haidilao’s restaurants are known for serving spicy broths and providing attentive customer service, which includes giving free manicures, shoulder massages and dance performances. It ratcheted up revenues of 7.3 billion yuan in the first half of 2018, a year-on-year increase of 54.4%. Profits attributable to major shareholders were 647 million yuan in the same period, a year-on-year increase of 17.04%.

The IPO will see Haidilao float just 8% of its capital. Of that, 40% has been taken up by cornerstone investors including Morgan Stanley and private-equity firm Hillhouse Capital Group. Yet available shares have been substantially oversubscribed, with over five times as many retail investors applying for the retail shares allocated.

The funds raised by the IPO will go toward the company’s ambitious expansion plans, with it hoping to add up to 220 restaurants to its 360 existing this year, largely by opening up more restaurants in China’s less prestigious third-tier cities. It is also pushing abroad, with almost 500 applications made to open stores in Australia, the U.K., Malaysia and Vietnam.

At present, analysts generally think the company’s IPO and expected profits will give Haidilao a price-to-earnings ratio of around 30. That would put it roughly in line with the average ratio of 37 for major international chain restaurants such as McDonald's, Starbucks, and Yum! China, according to statistics from Citigroup.

Contact reporter Ke Dawei (kedawei@caixin.com)


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