After a 90% market value evaporation, "Hong Kong's first stock of small bars" HELENS plans to seek a secondary listing in Singapore

Image Source: HELENS WeChat Official Account

HELENS, which became the "first stock of Hong Kong's small pub" in 2021, is now seeking a secondary listing in Singapore.

On June 27, HELENS announced that it is proposing a secondary listing on the Main Board of the Singapore Exchange without issuing new shares. The company has already submitted the listing application to the Singapore Exchange. On the same day, HELENS' plan for a secondary listing has been approved by the China Securities Regulatory Commission, and the International Cooperation Department of the CSRC has issued a notice of overseas listing filing to HELENS.

HELENS stated that the proposed secondary listing will allow the company to enter the Singapore securities market, develop its position in the Singapore securities market, further enhance its global visibility, support the expansion of its international business, broaden its shareholder base, and future fundraising channels. HELENS also mentioned that in the long run, the secondary listing will help promote the company's corporate image and enhance securities liquidity.

In fact, since its listing two and a half years ago, HELENS' total market value has shrunk from over HKD 30 billion on its first day of listing to around HKD 2.835 billion, with a market value evaporation of over 90%.

Now, choosing a secondary listing in Singapore also implies that HELENS wants to use this opportunity to overcome its development challenges.

Transitioning to a Franchise Model

Founded in 2009, HELENS is a representative of domestic chain pubs. Its founder, Xu Bingzhong, opened the first store in Wudaokou, Beijing. Positioned as a "offline social platform for young people," with extreme cost-effectiveness and a super low price of 10 yuan, it quickly attracted young consumer groups such as college students, achieving over a billion yuan in annual revenue. In September 2021, it was listed on the Hong Kong Stock Exchange, becoming the "first stock of Hong Kong's small pub."

At the time of its listing, HELENS stated that the raised funds would mainly be used to open new pubs, talent development, etc., and it was expected to open nearly 2,000 stores from 2021 to 2023. However, affected by factors such as the pandemic, HELENS incurred a loss of 230 million yuan in 2021. Less than a year after listing, in 2022, HELENS temporarily closed 194 stores, resulting in a loss of 1.601 billion yuan.

In March 2023, HELENS revealed its continued store closure plan, stating that it would abandon some stores that may not be supported in the short term. In June 2023, HELENS decided to transition to a light-asset operation and launched a franchise model - the "HiPhi Partner" program, vigorously developing a network of partner stores.

Due to the low threshold for joining, the business developed rapidly. As of March 28, 2024, HELENS has signed contracts with a total of 383 partner pub stores, of which 188 have already opened, approaching the scale of directly operated pubs.

The franchise partner store model of HELENS has to some extent had a positive impact on the company's performance. In 2023, HELENS' revenue decreased by 22.49% year-on-year to 1.209 billion yuan, but it successfully turned losses into profits, with a net profit of 180 million yuan. The company stated that the decrease in revenue was mainly due to the strategic transformation to a light-asset model, the active adjustment of directly operated store networks, and the vigorous development of partner store networks Initially, HELENS introduced franchise store formats including boutique stores, premium stores, and flagship stores, with store sizes ranging from 90 to 260 square meters. In September last year, the boutique store format was upgraded to adopt a managed cooperation model. HELENS stated that this store format only requires an initial investment of 500,000 to 700,000 yuan, and can be profitable with daily revenue exceeding a thousand yuan. On December 18th last year, HELENS announced the cancellation of gross profit sharing with franchise stores and returned all the previously shared gross profits.

An industry insider in the catering industry stated in a media interview, "HELENS has put this part of the profit into the supply chain, increasing prices for wine, raw materials, and other goods."

Guangfa Securities previously pointed out that according to the company's financial report, as of the end of 23, there were 255 company-operated pubs and 92 franchised pubs, with a net decrease of 398 and 22 respectively in 23, and as of March 19, 24, there were 236 company-operated pubs and 84 franchised pubs.

The bank expects that the HiPhi partner model will accelerate expansion in 2024. The average daily sales of a HiPhi partner pub are 7,000 yuan, with a small gap compared to company-operated and franchised pubs. Considering the smaller size of HiPhi partner pubs, the efficiency per square meter is higher. Under the new model, the company is expected to accelerate store expansion, cover a broader sinking market, and continue to strengthen its brand power.

However, some brokerages are cautious about HELENS' transformation. Zhongtai Securities recently stated in a research report that since the second half of 2023, HELENS' light asset project "HiPi Partner" has seen substantial progress. However, the stability of franchisee profitability and the impact of the transformation to a franchise model on the group's profitability still need to be observed over time.

Cutting losses by closing stores and seeking incremental growth in the sinking market

In the past year or two, HELENS has been busy "saving itself." In 2023, HELENS turned losses into profits. In addition to the expansion of light asset franchise partner stores, a key reason was the large-scale closure of company-operated stores in first and second-tier cities to reduce raw material, labor, and rent costs.

Financial reports show that as of December 31, 2023, HELENS had a total of 479 stores, a decrease of 288 from 2022. As of March 19, 2024, HELENS had 503 stores. At its peak, HELENS had 854 stores.

Among them, HELENS drastically closed nearly 70% of its company-operated stores. By the end of 2023, the number of company-operated pubs had decreased to 255, a net closure of 398 compared to the same period in 2022. As of March 19, 2024, the number of company-operated pubs had dropped to 236. The number of early franchised pubs decreased from 114 in 2021 to 84.

Regarding the reasons for the significant store closures, HELENS also stated in the financial report that in 2023, in order to adapt to the complex changes in the economic environment, the company firmly embarked on a strategic transformation towards a platform-based company and a light asset model. It actively adjusted the existing store network, vigorously developed partner store networks, fully mobilized high-quality social resources, and re-established long-term market layout Closing stores means reducing personnel and decreasing expenses, to some extent, bringing improvement to performance. As of December 31, 2023, HELENS had 675 in-house employees and 2104 outsourced employees; while in the previous year, there were 1637 in-house employees and 4029 outsourced employees. The labor service expenses in 2023 were 299 million yuan, a 70.2% decrease year-on-year.

At the same time, HELENS is also seeking growth in lower-tier markets, with a greater proportion of reduced store numbers in first and second-tier cities. The financial report shows that in 2023, the number of first-tier city pubs, second-tier city pubs, and third-tier and below city pubs owned by HELENS decreased from 80, 372, and 314 at the end of 2022 to 38, 186, and 252 respectively.

In lower-tier markets, HELENS has also launched the "food stalls + small pubs" model, opening "HELENS·Yue" stores, adding barbecue dishes while retaining the liquor menu.

Looking back since its listing on the Hong Kong Stock Exchange in September 2021, HELENS' market value has shrunk by over 80% compared to its initial listing. Especially since March 2023, the stock price has accelerated its decline. As of June 29, the closing price of HELENS was 2.24 Hong Kong dollars per share, with a market value of 2.835 billion Hong Kong dollars.

In fact, HELENS' first step in opening stores overseas started in Southeast Asia, specifically in Singapore. According to the financial report, as of March 19, 2024, HELENS has 503 stores globally, located in mainland China, Hong Kong, and Singapore, with 500 stores in mainland China.

Now, with HELENS choosing to have a secondary listing in Singapore, Shen Meng, CEO of Hansheng Capital, recently mentioned to the media that this move may be due to its poor performance in the Hong Kong market, needing to explore new trading markets to attract Singaporean investors to participate in the secondary market trading, injecting more vitality into the stock price and trading volume.

Shen Meng told the media, "HELENS may see opportunities in the Singapore market because some family offices or high-net-worth individuals' wealth management businesses have shifted to Singapore, but whether there are opportunities remains to be seen." (This article was first published on the Titanium Media APP, Author | Liu Dafang, Editor | Fang Yu)