February 22, 2022Shanghai Yang Guofu Enterprise Management (Group) Co., Ltd.Shanghai Yang Guofu Enterprise Management (Group) Co., LTD. (hereinafter referred to as "Yang GuofuSpicy Hot PotSubmit a prospectus on the Hong Kong Stock Exchange for listing on the main board of Hong Kong.

Yang Guofu Spicy Hot Pot prospectus link:

Https://www1.hkexnews.hk/app/sehk/2022/104248/documents/sehk22022201082_c.pdf

Main business

Yang Guofu Spicy Hot Pot, founded in 2003, after 19 years of development, has developed into a leading and well-known brand in China's fast food market. As of September 30, 2021, there are 5783 restaurants under the Yang Guofu brand. among them: 3 self-owned restaurants (Shanghai), 5759 franchise restaurants (throughout 31 provinces and cities in China), 21 overseas franchise restaurants (in Australia, Canada, South Korea, the United States, Japan, Singapore).

According to Frost Sullivan, Yang Guofu Spicy Hot Pot ranks first in China's Chinese fast food market in terms of total merchandise transactions and the number of restaurants in the year ending December 31, 2020. In addition, Yang Guofu Spicy Hot Pot ranks first in China's Spicy Hot Pot market in terms of revenue, total merchandise transactions and the number of restaurants for the year ended December 31, 2020.

Yang Guofu Spicy Hot Pot has a self-owned factory in Chengdu, Sichuan, designed and manufactured in accordance with EU BRC health standards and Class 300000 GMP requirements, and put into production in September 2018. the factory has a floor area of about 43991 square meters, mainly specializing in the production of home-made seasonings and retail products.

As of December 31, 2021, Yang Guofu Spicy Hot Pot has obtained a total of 40 patents, of which 31 are utility model patents, 2 are invention patents (advanced production equipment developed by ourselves), and 7 are design patents (which have been applied to product packaging).

Income model

Yang Guofu Spicy Hot Pot mainly generates revenue from the restaurant operation business segment, including the following business lines: (I) joining restaurants as the main source of revenue; (ii) proprietary restaurants; and (iii) others. In addition, Yang Guofu Spicy Hot Pot officially launched its retail business in January 2021.

Restaurant operation

To join the restaurant business line, the income mainly comes from the franchise fee, system maintenance fee and the sale of goods to the franchisee. In the first nine months of 2021 (hereinafter referred to as the current period), the business income accounted for 94.3% of the total revenue for the current period.

Franchise fee and system maintenance fee: the company usually requires the franchisee to pay the franchise fee for the current year before or when signing the annual franchise agreement. As of September 30, 2021, Yang Guofu has a total of 5780 franchise stores in Spicy Hot Pot (5759 in China and 21 abroad). The franchise fee and system maintenance fee income in the first nine months of 2021 is 38.738 million (RMB, the same below). Each franchisee roughly estimates that the contribution is only about 6700 yuan in franchise fees and system maintenance fee income (overseas franchisees do not charge system maintenance fees).

The sale of goods is the company's largest source of income, accounting for about 90.9% of the total revenue in the current period. Through the operation of the Spicy Hot Pot restaurant network under the Yang Guofu brand, the company sells specific goods to the affiliated restaurants according to the relevant agreements, including:

-selling home-made goods, that is, seasonings produced by the company's factory in Sichuan, which accounted for about 29.6% of the total revenue for the current period.

-resale goods purchased by a third party, that is, goods purchased by the company from a third party, including ingredients, seasonings, equipment and other materials needed for restaurant operation, which accounts for about 61.3% of the total revenue for the current period

Self-operated restaurant, income for Yang Guofu Spicy Hot Pot to provide catering services through its own restaurant. As of September 30, 2021, the company has retained three self-run restaurants in Shanghai as a pilot project.

Other businesses include: (I) reselling certain inventory goods, such as milk powder and MSG, providing staff training programs to franchisees, and operating the online ordering platform "YGF2.0 ordering APP- Fubao Module"-the company joins the restaurant to purchase specific goods from the suppliers of ingredients stationed on the platform, and the company charges online platform service fees.

Retail business

Yang Guofu Spicy Hot Pot produces all the retail products in the Sichuan factory, including online direct sales channels, online distribution channels, offline direct sales channels and offline distribution channels.

In November 2020, Yang Guofu Spicy Hot Pot developed its first retail product line: Spicy Hot Pot self-heating pot with five flavors, which was officially launched to the market in January 2021. As of December 31, 2021, Spicy Hot Pot Yang has launched two major types of retail products, including (I) convenience fast food products, mainly Spicy Hot Pot self-heating pot and multi-person self-heating hot pot; and (ii) compound seasoning products, mainly including hot pot base.

The current revenue of the retail business sector was 37.163 million yuan, accounting for 3.2 per cent of the total revenue in the same period.

Shareholder structure

According to the prospectus, the shareholder structure of Yang Guofu Spicy Hot Pot before the listing:

Mr. Yang Guofu, who directly holds 38.79% of the shares and controls 1.94% and 1.09% of the shares of the employee incentive platform (Shanghai Fuguo) and the head of the third party management partner (Shanghai Sheng Enfu) respectively as the sole general partner, has a total of about 41.82% of the voting rights.

Ms. Zhu Dongbo (spouse of Yang Guofu) directly holds 38.79% of the shares.

Mr. Yang Xingyu (son of Mr. Yang Guofu and Ms. Zhu Dongbo) directly holds 19.39% of the shares.

The Yeung family has entered into a concerted action agreement to act in accordance with Mr Yeung Kwok-fu's instructions.

The Yang family, Shanghai Fuguo and Shanghai Sheng Enfu can exercise 100% of the company's voting rights and are the controlling shareholders.

According to the company's prospectus, in the past 2019, 2020 and the first nine months of 2021, Yang Guofu's Spicy Hot Pot operating income was 1.182 billion yuan, 1.114 billion yuan and 1.163 billion yuan respectively, and the corresponding net profit was 181 million yuan, 169 million yuan and 202 million yuan respectively.

Intermediary team

The intermediary teams of Yang Guofu's Spicy Hot Pot are: Citic Construction Investment Corporation as its exclusive sponsor, KPMG as its auditor, Zhonglun and General Heng as its Chinese lawyer, Hong Kong and US lawyer respectively, King du as its brokerage lawyer, and Morgan Lewis as its brokerage Hong Kong and US lawyer, and Frost Sullivan as its industry consultant.