U.S. Stock IPO Preview | Hong Kong Restaurant Chain Beef King: Performance Fluctuations, Industry "Shallow Water with Many Fish"

As we all know, in addition to being known as the "International Financial Metropolis" and "Shopping Paradise," Hong Kong is also labeled as the "Gourmet Capital."

From street stalls, snack shops, time-honored brands, high-end Western restaurants, exquisite Cantonese restaurants, modern Chinese restaurants, to Chinese-Western fusion cuisine... whether in the small streets or high-rise buildings, one can always find unique culinary delights in Hong Kong.

The overall Hong Kong dining market is showing signs of recovery in 2024. According to Huang Jiahe, president of the Hong Kong Catering Industry Association, based on data from the past five months, the recovery of Hong Kong's catering industry has reached about 85% of pre-pandemic levels. On the first day of the National Day Golden Week, the business revenue of Hong Kong's catering industry reached HKD 300 million, matching last year's National Day figures. Industry insiders expect that the total revenue for the catering industry in October will reach HKD 9 billion, close to the pre-pandemic revenue of HKD 10 billion.

As the Hong Kong catering industry gradually recovers, relevant catering enterprises have evidently begun to become active in the secondary market.

On December 3rd, Niu Daren, which operates 12 Taiwanese hot pot and barbecue restaurants in Hong Kong, announced its initial public offering (IPO) terms. The company plans to issue 2 million shares at a price of USD 4 to 5 per share, raising USD 9 million. Based on the midpoint of the proposed price range, Niu Daren's market value will reach USD 77 million.

In mid-November this year, Niu Daren officially submitted its IPO application to the U.S. Securities and Exchange Commission (SEC), intending to use "MB" as its stock code and apply for a listing on NASDAQ. The company submitted a confidential application to the SEC as early as July 3, 2024. Headquartered in Hong Kong, it is a catering group offering Taiwanese cuisine, mainly including hot pot and barbecue. The company opened its first restaurant in 2019 and currently operates 12 restaurants under the Niu Daren and Anping Barbecue brands.

Interestingly, originating from Taiwan, thriving in Hong Kong, and expected to be listed on NASDAQ, will Niu Daren suffer from "adaptation issues" as it transitions through multiple locations?

Performance Fluctuations and High Debt

In September 2019, Niu Daren opened its first directly-operated store, followed by the opening of its second directly-operated store in November of the same year, and officially launched the brand on November 16. In February 2023, Niu Daren introduced a new sub-line "Bao Bao Guo" in Causeway Bay, featuring authentic Taiwanese stone hot pot. As of 2024, Niu Daren operates a total of 12 restaurants under the Niu Daren and Anping Barbecue brands.

According to observations from Zhitong Finance APP, as a catering group, Niu Daren primarily targets the mid-to-high-end consumer market, offering Taiwanese cuisine, including hot pot and barbecue, with fresh ingredients, some of which are directly sourced from Taiwan. The variety of soup bases includes Grandma's nourishing thick soup pot and Emperor's nourishing ginger duck pot.

With the recovery of the Hong Kong catering industry, Niu Daren's revenue and net profit have evidently shown signs of fluctuating recovery since 2024.

According to the prospectus, Niu Daren achieved revenues of HKD 457 million and HKD 532 million (USD 68.15 million) for 2022-2023, representing a year-on-year growth of 16.41%; corresponding net losses were HKD 33.4 million and HKD 37.45 million (USD 4.8 million). The loss amount has further widened By the first half of 2024, the company achieved revenue of HKD 244 million (USD 31.29 million), a year-on-year decline of 5.06%; it achieved a net profit of HKD 40.15 million (USD 5.14 million), a significant turnaround from a loss of HKD 15.84 million in the same period of 2023. Overall, although Niu Da Ren's performance is showing signs of recovery, it is actually unstable.

It is worth noting that even though the Hong Kong catering industry is showing signs of recovery, Niu Da Ren's average customer spending, average seat turnover rate, and average daily revenue per restaurant have all declined: as of the first half of 2024, the average customer spending was HKD 245.5, compared to HKD 267.6 in the same period of 2023, with an average seat turnover rate of approximately 1.7 times per day, down from 2.0 times per day in the same period of 2023. The average daily revenue per restaurant was about HKD 81,000, compared to HKD 111,000 in the same period of 2023.

(Data source: Niu Da Ren prospectus)

Amidst performance fluctuations, due to Niu Da Ren's high debt levels, the company's liquidity has visibly tightened.

According to the prospectus data, as of June 30, 2024, the company's total liabilities were HKD 285 million, total assets were HKD 321 million, and cash and cash equivalents were HKD 124 million. With high debt levels, the short-term repayment pressure cannot be ignored. Additionally, in the same period last year, the total liabilities were as high as HKD 397 million, while total assets were HKD 393 million, resulting in an asset deficit of HKD 4 million.

Through the company's fundraising objectives, it is clear that the net proceeds from this issuance will be used to establish new restaurants and franchise operations in Hong Kong and overseas to expand the company's restaurant network, marketing and branding activities, production and sales of packaged hot pot base materials, and restaurant upgrades. Therefore, it is not difficult to understand the company's intention to go public in the U.S. under the pressure of tight funds.

From 2019 to 2020, due to the impact of the pandemic, the overall market size of the Hong Kong catering service industry significantly declined by approximately 29.4% year-on-year. Subsequently, in 2021, as the impact of the pandemic decreased and dining restrictions were relaxed, the Hong Kong catering industry began to recover along with the overall economy.

Since 2023, with the lifting of border controls and preventive measures, local demand has rebounded, and the tourism industry has recovered, leading to a strong recovery in Hong Kong's catering industry. The market size of Hong Kong's catering industry reached HKD 109.5 billion in 2023. Looking ahead, it is expected that the overall market size of the Hong Kong catering service industry will reach HKD 134.8 billion from 2024 to 2028, growing at an annual rate of approximately 4.3 percentage points.

(Image source: Niu Da Ren prospectus) In terms of cuisine, by revenue, Cantonese cuisine accounts for over 80% of the market share in Hong Kong among the various Chinese cuisines. In Asian cuisine, it accounted for approximately 32.3% by revenue in 2023, and it is expected to reach a market size of about HKD 43.9 billion by 2028. Western cuisine accounted for about 9.9% of the revenue in the food service industry in 2023, and it is expected to reach about HKD 12.7 billion by 2028.

However, it is important to note that the most obvious characteristic of the current Hong Kong food service market is "intensified competition," with numerous dining establishments vying for the attention of the same customer base.

According to the Hong Kong Census and Statistics Department, there were over 14,900 catering enterprises in Hong Kong in 2022, of which about 90% were small and medium-sized enterprises with fewer than 50 employees. With the rapid recovery of the tourism sector and the full reopening of transit points in 2023, it is expected that about 15,300 participants will enter the market in 2023.

In the Chinese and Asian cuisine market, five groups represented by local chains such as Maxim's Group, Tao Heung Group Limited, Fu Lin Group Holdings Limited, Good House Group, and Taste Group occupy about 10.3% of the market share.

As of December 31, 2023, the top three Taiwanese restaurant brands accounted for approximately 20.8% of the overall market share. The group led by Beef Master, which consists of beef and Anping barbecue brands, is the largest Taiwanese food company in Hong Kong, holding about 9.7% of the market share.

From the above, it can be seen that although the brands under Beef Master perform relatively well among Taiwanese restaurant brands, the competitive pressure on the company cannot be underestimated in a "small water with many fish" development environment. To continue to stand out and maintain an advantage in the fiercely competitive Hong Kong food service market, Beef Master may still need to continuously innovate its dishes, optimize services, and enhance its brand image.

In summary, under the influence of multiple factors such as performance fluctuations adding uncertainty and intensified competition increasing competitive pressure, the development pressure currently faced by Beef Master is evident, which undoubtedly also means that the company's IPO may not be so easy