US Stock IPO Preview | Yipin Chicken Pot: Revenue exceeds 20 million USD, how can the "shallow water with many fish" Hong Kong dining industry break through?

Recently, Yipin Chicken Pot Hotpot updated its prospectus. Previously, the company submitted its DRS for the first time in secret on September 15, 2023, and subsequently publicly disclosed its prospectus for the first time on December 6, 2024. This is the company's third update.

As the competitive landscape of the restaurant industry continues to evolve, more and more enterprises are seeking to leverage the power of the capital market for leapfrog development.

According to Zhitong Finance APP, the company had applied for a listing in Hong Kong in 2019 and 2020 but was unsuccessful. Now, Yipin Chicken Pot has chosen to abandon Hong Kong for the U.S., perhaps out of necessity due to the failure to list in Hong Kong.

Seven Hotpot Restaurants Support One IPO

The prospectus shows that Yipin Chicken Pot Hotpot, based in Hong Kong, is a Chinese chain restaurant specializing in various specialty chicken pots. The company operates seven chain restaurants located in the New Territories, Kowloon Peninsula, and Hong Kong Island. With over 13 years of experience in the Hong Kong restaurant industry, it also has a food factory to support its operations. It offers a variety of chicken pot flavors, such as abalone chicken pot, seafood chicken pot, coconut chicken pot, and more.

In terms of revenue, the top ten hotpot brands in Hong Kong accounted for approximately 46.7% of the entire hotpot market in 2023, with Yipin Chicken Pot Hotpot holding about 2.1% of the hotpot market share and 5.7% of the specialty hotpot market share. It ranks 8th among all chain hotpot restaurants and 6th among chain specialty hotpot restaurants.

In 2022, 2023, and the first half of 2024, the company's revenues were approximately $13.0087 million, $20.4834 million, and $8.3356 million, with corresponding net profits of $476,000, $3.4165 million, and $443,900. From the financial data, Yipin Chicken Pot Hotpot has shown some volatility in recent years.

It is noteworthy that due to rising inflation affecting food prices and labor costs, the gross profit margin of Yipin Chicken Pot Hotpot has significantly declined from approximately 26.7% in the first half of 2023 to about 16.1% in the first half of 2024. However, despite the pressure on revenue and gross profit margin, the company's cost expenses have generally increased.

According to Zhitong Finance APP, in the same period last year and the first half of 2024, the company's sales and marketing expenses were approximately $22,000 and $42,000, accounting for about 0.2% and 0.5% of total revenue during the same period; general and administrative expenses were approximately $100,000 and $200,000, accounting for about 0.9% and 2.5% of total revenue during the same period.

Converted at the current USD exchange rate, the revenues for 2022 and 2023 were approximately 94.66 million yuan and 149 million yuan, indicating the company's revenue growth is weak and even experiencing slight declines.

In light of this situation, Yipin Chicken Pot Hotpot candidly stated in its prospectus that due to operating deficits, there are doubts about the company's ability to continue as a going concern. Specifically, as of June 30, 2024, December 31, 2022, and 2023, the company's operating capital deficits were $3.183 million, $3.92 million, and $2.201 million, respectively At the same time, the positive cash flow generated from operating activities also shows certain volatility, amounting to USD 586,800, USD 1,604,500, and USD 4,146,200 respectively. These figures further highlight the financial pressure and challenges currently faced by the company.

Where are the opportunities for breaking the deadlock in Hong Kong's restaurant industry?

According to the prospectus, the Hong Kong restaurant market has been severely impacted by factors such as the pandemic and social control measures, with the overall market size of the Hong Kong catering service industry declining by approximately 29.4% year-on-year from 2019 to 2020. Since 2023, local demand has rebounded, and the recovery of the tourism industry has driven the revival of Hong Kong's catering industry, with the market size expected to reach HKD 109.5 billion in 2023. Looking ahead, the overall market size of the Hong Kong catering service industry is projected to grow at a compound annual growth rate of approximately 4.3% from 2024 to 2028.

  It can be seen that the growth rate of the local restaurant market in Hong Kong is slowing and approaching saturation, while the exceptionally high operating costs have also led local restaurant businesses to face the crisis of declining profits.

From the performance of the restaurant industry in 2024, although the impact of the pandemic has diminished, the local restaurant market in Hong Kong remains bleak. Three major factors have led to a general decline in the performance of local restaurant stocks: Hong Kong residents consuming in mainland cities, local residents being cautious in their spending, and changes in the consumption patterns of visitors to Hong Kong.

According to the interim reports disclosed by several local listed restaurant companies in Hong Kong, the revenue of Café de Coral Group (00341) in the first half of the year decreased by 1.2% year-on-year, and the net profit attributable to shareholders fell sharply by 28.2%. This marks the first decline in interim revenue for Café de Coral Group since the mid-year of the 2021 fiscal year during the pandemic; the profit attributable to shareholders of Fairwood Holdings Limited (00052) decreased by 57.26% year-on-year, nearly halving; and the interim profit of TamJai International (02217) fell by 55.8% year-on-year, down to HKD 36.068 million.

Fairwood pointed out that Hong Kong is experiencing an economic downturn, and customers can only tighten their spending while waiting for the economy to become clearer. Fairwood believes that the increasing number of residents from mainland cities who can now visit Hong Kong without a visa will help offset the impact of Hong Kong residents "consuming in the north." Meanwhile, the economic downturn has also led to a decrease in rental costs, providing expansion opportunities for Fairwood, as one-third of the new lease rents for the group's restaurants will be negotiated next year, which may help improve profitability.

As many old and established restaurants in Hong Kong have closed down, rental prices in major business districts are also at their lowest levels in years.

According to data from Centaline Property, there were approximately 292 commercial leasing transactions in the Hong Kong market in December 2023, with a total leasing amount of approximately HKD 31.35 million, a decrease of about 19.5% compared to November 2023. This has become a good opportunity for mainland restaurant brands to enter the Hong Kong market at a lower cost. For example, in major business districts in Hong Kong, mainland restaurant brands such as Tai Er Sour Fish, Nonggeng Ji, and Xita Laotai have emerged like mushrooms after rain In contrast, Yi Pin Ji Bao Hot Pot has not only failed to expand into the mainland but has also seen no new developments in its restaurant opening plans in Hong Kong. As early as 2020, the company stated that it planned to open five new restaurants in residential areas of Hong Kong over the three years ending December 31, 2023, and to establish six hot pot restaurants at a pace of one every six months in the future. However, as of the latest disclosure date, the number of restaurants under the company has not changed compared to 2018. This situation not only reflects the company's difficulties in market expansion but also highlights the severe challenges faced by the local dining market in Hong Kong.

In summary, for Yi Pin Ji Bao Hot Pot, its poor fundamental performance and stagnation in store expansion undoubtedly add more uncertainty to its path toward listing in the United States