Hot­pot chain to raise $129m in HK to in­crease out­lets, im­prove lo­gis­tics

China Daily (Canada) - - BUSINESS - By XIE YU in Hong Kong xieyu@chi­

Xi­abux­i­abu Cater­ing Man­age­ment Co, the iconic hot­pot restau­rant chain on the Chi­nese main­land, is seek­ing to raise about HK$1 bil­lion ($129 mil­lion) on the Hong Kong stock ex­change by of­fer­ing 227.1 mil­lion shares for sale to the pub­lic at be­tween HK$4.4 to HK$5 apiece.

Xi­abux­i­abu said it has of­fered its in­ter­na­tional un­der­writ­ers an over-al­lot­ment op­tion of 34 mil­lion ad­di­tional shares. This op­tion, when ex­er­cised, will boost the pro­ceeds of the IPO as well as the company’s mar­ket cap­i­tal­iza­tion.

Xi­abux­i­abu’s CEO

Yang Shul­ing said her company has ear­marked up to 74.4 per­cent of the net IPO pro­ceeds to help fund the open­ing of an ad­di­tional 453 restau­rants through­out the main­land in the next four years. The company cur­rently owns and op­er­ates 420 restau­rants.

Yang said that the new restau­rants would be spread across the coun­try in Beijing, Tian­jin, Shang­hai and the south­east re­gion. Other strate­gic lo­ca­tions in­clude Shanxi andHe­nan prov­inces, she said, adding the company will have more than 1,000 restau­rants by 2018.

Another 10 per­cent of the IPO pro­ceeds would be spent on an ad­di­tional lo­gis­tics and pro­duc­tion cen­ter in Beijing, Yang said. The company also plans to build a sim­i­lar cen­ter in Shang­hai with about 12.6 per­cent of money raised in HongKong, she said.

Ac­cord­ing to Frost & Sul­li­van, a mar­ket re­search in­sti­tu­tion, Xi­abux­i­abu dom­i­nated the fast-ca­sual hot­pot restau­rant mar­ket in the Chi­nese main­land with a mar­ket share of 51.9 per­cent in 2013.

“Xi­abux­i­abu has done a fan­tas­tic job in set­ting up a ma­ture business model that es­tab­lishes a mod­ern and af­ford­able dinning style, gen­er­ates high profit, guar­an­tees qual­ity, and can be repli­cated fast,” said Ho Kuang-Chi, the company’s chair­man.

Av­er­age spend­ing per diner at a Xi­abux­i­abu out­let amounts to about 44 yuan ($7), which was low enough to num­ber of hot­pot chain out­lets now­op­er­ated or owned by

Xi­abux­i­abu at­tract as many as 56 mil­lion cus­tomers in 2013.

All Xi­abux­i­abu restau­rants share the same de­sign and lay­out which em­pha­size on ef­fi­ciency that can help cut over­all costs, the company said. What is more, the chain is large enough to achieve econ­omy of scale, giv­ing it bar­gain­ing power in ne­go­ti­at­ing with sup­pli­ers and land­lords.

The company’s pre­lim­i­nary prospec­tus said that it typ­i­cally takes three months for a new restau­rant to break even and 14 months to be­gin mak­ing a profit.

Es­ther Ho, an in­vest­ment banker at Mer­rill Lynch, said val­u­a­tion for Xi­abux­i­abu shares is es­ti­mated at around 17 times earn­ings, per share.

An­a­lysts said that cater­ing com­pa­nies typ­i­cally of­fer their shares for sale at mul­ti­ples of be­tween 16 to 19 times in

or HK$5 Hong Kong’s IPO mar­ket.

Trad­ing of the company’s shares on theHongKong stock ex­change is ex­pected to com­mence on Dec 17 and would be traded in lots of 500 shares.

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