Hong Kong is not big, there are many bars, and Lan Kwai Fong in Central is the most famous, and there is no lack of well-done clubs and bars to enter the capital market.

Zhitong Financial APP observed that a few days ago, Hong Kong Entertainment Group Holdings Limited (hereinafter referred to as Hong Kong Entertainment) submitted a prospectus to the Hong Kong Stock Exchange to apply for listing on the main board, with Fengsheng Finance Co., Ltd. as the exclusive sponsor.

Hong Kong Entertainment is a clubhouse and bar operating group that provides customers with a variety of night entertainment experiences and drinks of different brands. At present, it has three clubs such as Levels, Bungalow and Club Legend, and two bars such as Solas and I Know John, all of which are located in Lan Kwai Fong, Mong Kok and other prime locations.

Based on the steady increase in the number and level of consumption of Hong Kong's local and inbound tourists, as well as Hong Kong's unique advantages, the size of the Hong Kong clubhouse and bar market is also growing steadily, with a compound annual growth rate of 3.5% and 3.1% respectively over the past five years. In addition, Hong Kong Entertainment has a market share of 14.1% in terms of 2017 revenue, and the number of people that can be accommodated by Levels in 2017 ranks second among Hong Kong clubs.

In terms of specific business, Hong Kong Entertainment mainly makes money by providing entertainment venues and equipment to customers and selling alcoholic beverages, while the upstream manufacturers are mainly DJ, which provides music and equipment, and alcoholic beverage suppliers.

Zhitong Financial APP learned that Hong Kong Entertainment recorded a revenue of HK $136 million in fiscal 2018, a compound growth rate of 6.9 per cent over the past three years. The specific income comes from the sale of drinks, admission fees and sponsorship income, whileBeverage sales account for more than 90%.Is the main source of revenue for the company, and is mainly concentrated inLevels and Bungalow clubhousesDue to the positioning of its high-end clubhouse, the drinks sold are mainly higher-priced alcoholic beverages such as champagne and spirits, with an average price of HK $6 to 180000, accounting for 90 per cent of beverage sales.

The development of business diversification also provides a guarantee for stable performance. While the clubhouse business has grown steadily, the company has also expanded its bar business, increasing the proportion of revenue from 2.9% to 11.2%.

As a result of good operation, there was ample cash flow at the end of the third quarter of 2018, with cash and equivalents reaching HK $17.7 million at the end of the period, while current liabilities were only HK $1.13 million. Low debt supported the company's further business expansion. In fact, Hong Kong Entertainment did the same. Zhitong Financial APP learned that the company continued to upgrade its clubhouses and bars during the period, trying to create a higher-end and better environment.

However, the good performance still can not cover up the current situation that many hidden dangers coexist.

Zhitong Financial APP observed that although the clubhouse market and the bar market have grown at a compound annual rate of 3.5% and 3.1% respectively over the past five years, the corresponding compound annual growth rate of costs is comparable. The compound annual growth rates of salary, rent and alcohol are 5.5%, 0.3% and 5.7%, respectively. Except for rent, the other two items far exceed the growth rate of the market scale.

Although this situation has eased somewhat in terms of forecasts, the clubhouse market, as the main business, still has a growth rate of only 4.1%, while salary growth has reached 7.1%. Although the growth rate of alcohol price of 3.1% has not exceeded the growth rate of the market scale, spirits, as a major liquor, has a compound growth rate of 18.2% in the past five years, and even if it is forecast to decline to 3.7% in the future, the risk remains.

In addition, in terms of beverage suppliers, the costs of the five major suppliers account for more than 80% of the total procurement costs. In the past three years, the largest supplier, MHD, accounted for 72.2%, 68.8% and 61.8%, respectively. Although it is declining, the strong dependence on MHD also makes the company's cost control have great hidden dangers.

The past has passed and can only be used as a reference for the future situation.

But history is a good book, in order to better predict the trend of Hong Kong Entertainment after listing, Zhitong Finance selected the financial data and stock price trends of companies in the same industry before and after listing as a reference for Hong Kong Entertainment.

Ox International (02080, formerly Aiyepu), Luqing Entertainment (08052) and Gaomen Group (08412) are all listed companies in Hong Kong, with clubhouses and bars as their main business, typical "nightclub stocks".

According to the statistics of Zhitong Financial and Economic APP, the operating income of these companies was stable before listing, but it can be seen that the operating income of Ox International and Gaomen Group has shrunk to varying degrees, while Lu Qing Entertainment is basically standing still.

When it comes to net profit, except for the slight net profit before and after the listing of Ox International, the other two companies are still losing money. Ox International's net profit is declining before the listing, while the other two companies' losses have narrowed, but without exception, they all lost more and more after the listing.

The listing performance is also very similar-"handsome for no more than three seconds". After the opening rose on the first day, the stock price plummeted the next day, which is extremely unfriendly for investors who are keen to play new investors.

By comparison, Hong Kong Entertainment can be regarded as a "top student", with positive growth in both revenue and net profit, according to APP of Zhitong Finance.The debut is still very interesting.However, based on the risk factors analyzed above, compared with the "top students", they also have their own worries.