After a 90% drop in Hong Kong stocks, HELENS plans to move overseas to the new exchange

The taverns are expanding overseas.

On July 19th, "the first stock of taverns" HELENS (9869.HK) was listed on the Main Board of the Singapore Exchange (referred to as "SGX") for a secondary listing.

HELENS announced that the secondary listing on SGX will further enhance its global visibility and support the expansion of international business.

Although not involving equity financing, HELENS believes that the secondary listing will expand its shareholder base and broaden its financing channels, which will help promote the corporate image and enhance stock liquidity.

HELENS successfully turned a profit last year, but its stock price performance this year is not optimistic, with a decline of 40.16% year-to-date, falling by 90% from its peak when it went public in 2021.

For HELENS, which is deeply undervalued, it is urgent to tell the market a brand new growth story.

According to a source related to HELENS obtained by Wall Street News · TradeWind (ID: TradeWind01), the main purpose of HELENS listing on SGX is to expand its overseas business.

When it comes to expanding overseas markets, HELENS founder Xu Bingzhong is considered a veteran. Before returning to China to start a business in 2009, he made his first fortune by running a small tavern in Laos.

The head of HELENS international business told Wall Street News · TradeWind (ID: TradeWind01) that HELENS's overseas expansion strategy and domestic franchise store expansion are the highest-level strategies for HELENS.

The source mentioned above stated that HELENS currently has three clear expansion directions in overseas markets, namely the United States, Tokyo Bay Area, and Southeast Asia. This year, the first flagship stores will be opened in Tokyo, Los Angeles, Vietnam's Ho Chi Minh City, Thailand's Bangkok, and Malaysia's Kuala Lumpur.

"It serves as a model through direct-operated stores," the source said.

Will community stores drive overseas expansion?

Almost at the same time as heading to the SGX for a secondary listing, HELENS launched a new franchise model - community stores, adding fuel to the subsequent overseas expansion.

On July 13th, HELENS, which tasted the sweetness of expanding with a light-asset model, introduced the community store franchise model. It claims that the store can be set up for "RMB 400,000" (including basic decoration RMB 80,000, design and soft decoration RMB 180,000, operating equipment RMB 80,000, start-up costs RMB 30,000, and a deposit of RMB 30,000), with a payback period of 12-18 months.

In comparison, under the "HiPhi Partner" model launched by HELENS in 2023, the cost of opening a store is much higher. Under this model, HELENS divides stores into three types based on area: boutique stores of 80-120 square meters, premium stores of 180-200 square meters, and flagship stores of 240-260 square meters.

Taking the premium store with an area of 180-200 square meters as an example, dealers joining the franchise need to pay RMB 600,000 for decoration and decoration fees, starting from RMB 200,000 for equipment and furniture fees, RMB 150,000 for brand cooperation fees, and a deposit of RMB 50,000, totaling RMB 1 million. The investment is more than double that of community stores, and the area is 2-5 times that of community stores.

In terms of product structure, compared to the "HiPhi Partner" opening night-life chain taverns, HELENS's community stores are more like convenience stores, selling beer products as well as warm food, desserts, and more A source close to HELENS revealed to Wall Street News · TradeWind01 that in addition to selling alcoholic beverages, community stores also sell coffee, snacks, simple meals, etc., with 100 SKUs available. Franchisees can choose their own product combinations based on specific needs, and the store's own brand beers (rama and joie space) can also be resold to surrounding B-side merchants.

Compared to the "Hi Beer Partner" model with upfront investments often exceeding millions, the threshold for small and medium franchisees is lower for the above-mentioned community stores. The source close to HELENS mentioned that HELENS is cooperating with financial institutions, and franchisees can join with a starting capital of 50,000 RMB.

Wall Street News · TradeWind01 learned from the head of HELENS International Business that this model will also be replicated in overseas markets by HELENS.

The individual stated that while opening the first store overseas, HELENS will mainly seek expansion opportunities through the small store format of community stores.

The reason may lie in the lower store investment costs reducing the entry barriers for franchisees. With the premise of the store model running smoothly, this also helps HELENS to scale up more quickly in overseas markets.

HELENS has only one goal: to sell more alcohol.

Because under HELENS' community store model, it does not rely on franchise fees for profit but benefits from marking up raw materials and alcoholic beverages sold to distributors. In terms of business model, HELENS is more like a popular ice cream chain, with a markup rate of about 25% over the supply chain costs.

When Wall Street News · TradeWind01 inquired about how the head of HELENS International Business plans to implement the goal of "product price floor" overseas, the response was that HELENS still implements its low-price strategy by integrating overseas supply chains for procurement and developing its own brands.

Past Challenges

Since switching from a direct-operated model to a franchise model last year, HELENS has experienced a wave of store closures.

In 2023, HELENS' net store count decreased by 288 to 479.

Direct-operated stores became the main assets being abandoned, with a net decrease of 398 stores for the year.

Looking at cities, HELENS' store closure progress is not limited by city level. Whether in first-tier, second-tier, or third-tier cities, all are in a state of indiscriminate contraction.

As a result, HELENS continued the previous year's weak growth trend, with revenue declining by 22.09% year-on-year.

Consequently, HELENS' net fixed assets value decreased by 38.96% to 423 million RMB year-on-year, but at the same time, it does not have to bear heavy capital expenditure pressure.

At the same time, HELENS launched the "Hi Beer Partner" franchise model and opened a net of 132 stores in the same year under the light asset model.

HELENS' official account shows that as of June 1st this year, there were 256 Hi Beer Partner stores, with a net opening of 124 stores in the first half of the year.

Wall Street News · TradeWind01 learned from a source close to HELENS that internally, HELENS expects to open approximately 400 new franchise stores this year, bringing the store count back to the peak level of 800-900 stores Market may still have doubts about the recovery of HELENS, with its year-to-date decline reaching 40.16%.

One of the doubts may lie in the fact that HELENS has been intensifying its "price war" this year. The pricing of its beer has dropped from 9.9 yuan/bottle to 6.99 yuan/bottle, and even before May Day, it had dropped to 2.99 yuan at one point, which may have a negative impact on its profit performance.

A source close to HELENS told Wall Street News · TradeWind01 (ID: TradeWind01) that internally, HELENS refers to this behavior as "King of Volume Return." There will be new traffic diversion activities every month, using only controllable diversion funds.

During the annual performance briefing earlier, HELENS management also explained the price war by stating that the 6.99 yuan beer is used as a means of attracting customers, lowering the psychological threshold of consumers, and thus enabling them to purchase high-margin products in the store.

"Because for a pub, the most important core is popularity."

Now, HELENS is looking for popularity overseas.

However, challenges remain. Due to the different stages of the beer industry in various countries, HELENS' strategy of copying the low-price strategy in the domestic market may not necessarily work.

For example, in the largest beer consumption market in the world, the United States, the high-end process of beer has been ongoing for over 20 years, with beer consumption demands becoming more differentiated, placing more emphasis on innovation than low prices.

According to Ping An Securities analyst Zhang Jinyi's research report data, with the popularity of craft beer, hard seltzer, non-alcoholic beer, and other products, the CR3 of the U.S. beer market has decreased from 81% in 2011 to 70% in 2021, with the market share of the two major oligarchs, Anheuser-Busch InBev and Molson Coors, significantly declining.

Compared to rebuilding a new brand, it is difficult for foreign beer brands to penetrate the local market and mainly rely on mergers and acquisitions.

For instance, the Danish beer group Carlsberg acquired 6 local beer brands between 2003 and 2013, the most famous of which is Wusu Beer, which is now a major product of Chongqing Beer (600132.SH).

However, for HELENS, which does not even consider building its own brewery, the investment in acquiring a brand is still too heavy.

Looking at the competitive landscape of chain pubs, traditional markets like the United States and Japan have a tradition of going to pubs, while HELENS, which is still considered a "popular pub" by young people in China, may have to remove the filter overseas and face competition.

As of March 19, 2024, HELENS has a total of 3 stores outside mainland China, all located in Singapore.

The head of HELENS' international business told Wall Street News · TradeWind01 (ID: TradeWind01) that HELENS plans to increase the number of overseas stores from 3 to double digits by the end of the year.

The market does not seem to have high expectations for the above goals - on July 19, HELENS fell 4.15% to HKD 2.08 per share