LINE

Text:AAAPrint
Economy

Chinese hotpot chain Haidilao slumps below IPO price

1
2018-09-27 16:12:06CGTN Editor : Gu Liping ECNS App Download

Chinese hotpot giant Haidilao, which was listed on the Hong Kong market yesterday, opened low at 17.8 Hong Kong dollars (around 2.28 US dollars) before reporting a slump below IPO price by 17.76 Hong Kong dollars (around 2.27 US dollars), showcasing multiple worries of the market. 

Some analysts claim the overvaluation of the hotpot behemoth has always been a concern of the capital market. The performance on the first day of listing also reflects the cautious attitude of the market. The expansion of Haidilao in the past two years has promoted rapid growth in revenue, but in fact it is facing hidden problems.

The valuation of Haidilao is close to its ceiling even under optimistic expectations. In accordance with the company's IPO price of 17.80 Hong Kong dollars (around 2.28 US dollars), its market capitalization stands at 94.34 billion Hong Kong dollars (approximately 82.9 billion yuan or 12 billion US dollars). Measured by RMB, its price-to-earnings ratio for 2017 is 69.5, and is expected to reach 32.29 in 2019 with net profit after tax up to 2.57 billion yuan (around 37.3 billion US dollars), which can be regarded as the most expensive catering stock in the Hong Kong market.

From the perspective of absolute valuation which uses discounted cash flow (DCF) analysis to determine a company's financial worth, assume that the existing single-store profitability will remain unchanged in the future, and then its current market value implies the expectation of more than 700 mature restaurants in the next five years. Haidilao chose to go public at the highest profit level and the fastest expansion rate, giving the market a very high growth expectation, but it adopts the expansion line easy for a start and difficult in the long run, so the late stage is worrying.

Another major potential risk is reflected in the table turnover rate or how many times the table becomes occupied by a new party. The extremely high turnover rate has created fairly high store revenue, but once the rate declines, a sharp plunge would be witnessed in the revenue and net interest rate, corresponding to the slump in net profit. 

Besides, catering is an industry with cut-throat competition and constant changes in consumer tastes, if such high-level going concern assumption is falsified, the current valuation of Haidilao will undergo major adjustments.

On the whole, the market gives considerably high expectations for Haidilao which availed itself of the great opportunity for listing, yet its future growth still faces significant uncertainties. What lie behind the immediate interests are in practical terms major and long-term risks.

  

Related news

MorePhoto

Most popular in 24h

MoreTop news

MoreVideo

News
Politics
Business
Society
Culture
Military
Sci-tech
Entertainment
Sports
Odd
Features
Biz
Economy
Travel
Travel News
Travel Types
Events
Food
Hotel
Bar & Club
Architecture
Gallery
Photo
CNS Photo
Video
Video
Learning Chinese
Learn About China
Social Chinese
Business Chinese
Buzz Words
Bilingual
Resources
ECNS Wire
Special Coverage
Infographics
Voices
LINE
Back to top Links | About Us | Jobs | Contact Us | Privacy Policy
Copyright ©1999-2018 Chinanews.com. All rights reserved.
Reproduction in whole or in part without permission is prohibited.