On December 12, the leading convenience Dining enterprise, Little Vegetable Garden, officially launched its Hong Kong stock offering, planning to globally issue 0.101 billion shares, with 10% for Hong Kong public offering and 90% for international offering, along with a 15% over-allotment option; the offer price per share is set at HKD 8.50, with a minimum lot size of 800 shares, and listing is expected on December 20.

As a leading Dining enterprise in a rapid expansion phase, Little Vegetable Garden is set to enter the Hong Kong stock market with its unique business model and excellent performance. This scene inevitably reminds one of HAIDILAO in 2018, leading to the question: Can Little Vegetable Garden spark a new wave of Dining IPO enthusiasm?

Meanwhile, with multiple bullish catalysts recently, the Hong Kong IPO market is continuing to recover, especially in the CSI Consumer 360 index sector, where performance has been impressive—from Midea Group Co., Ltd to China Resources Beverage, the IPO subscription situation has been extremely enthusiastic. This suggests that Little Vegetable Garden faces a favorable listing opportunity and has more reasons to attract more investors.

At this point, the value logic is further sorted out as follows, which might help in exploring its potential.

Innovative and easily replicable model creates a high growth leader.

Essentially, the demand in the Dining market is stable and continuously growing, with numerous developmental opportunities; however, the current oversupply and serious homogeneous competition in the Dining industry are undeniable facts. Only through innovation can a true new leader in Dining emerge. The core of Little Vegetable Garden's business model is precisely innovation, which meets consumers' urgent need for healthy and affordable food, providing sufficient developmental momentum and space. This is also an important underlying logic for its continued growth in the future.

Specifically, the Little Vegetable Garden brand adheres to a cooking method that uses less oil and salt, based on the characteristics of traditional Huai cuisine, focusing on health and nutrition while restoring the original taste of food, with "the taste of mother" as the core concept, insisting on on-site cooking, differentiating itself from Pre-Cooked Food, thereby successfully shaping its brand differentiation and highlighting its health tone.

At the same time, Little Vegetable Garden offers friendly prices and thoughtful service, with an average spend between 50 and 100 yuan, forming a high-quality price-to-value Dining solution that serves the public, continually building the brand image of a "family kitchen" for the people of China.

Focusing on the product side, the small kitchen has adopted a more refined innovation strategy, not only creating homestyle flavors that are healthy and fresh based on brand positioning but also adapting to changing times and locations. The supply chain of the small kitchen selects high-quality ingredients nationwide, sourcing from original producing areas, concentrating on premium raw material procurement, and offering seasonal menus year-round for customers. It also customizes differentiated dish combinations for stores in various provinces and cities across the country.

This further supports its expansion. On one hand, it helps the small kitchen gain consumer trust and build brand reputation. On the other hand, it can be seen that through dish innovation, the small kitchen can adapt to the taste preferences of consumers nationwide, creating an opportunity to further promote national expansion.

On the channel side, the small kitchen is also continuously improving its store coverage and expanding its geographical service range, with the prototype of a national leader beginning to emerge.

As of the last feasible date (December 5, 2024), the small kitchen has 663 operational directly operated stores (of which 658 are under the "small kitchen" brand), covering 146 cities or counties across 14 provincial administrative regions in China. The small kitchen also plans to open about 160 new stores in 2025 and 180 in 2026, aiming for a thousand-store goal by the end of 2026. This means that in the next two years, the number of stores for the small kitchen will continue to grow by nearly 50%, maintaining rapid expansion and is expected to cover more markets.

At the same time, the small kitchen is actively responding to the diversity of current consumer scenarios, accelerating the development of its takeout business to achieve full-scene coverage of "dine-in + delivery," covering more people and expanding its customer base at a lower cost, bringing benefits.

Furthermore, in addition to the factors mentioned above, behind the rapid expansion of the small kitchen's stores are two major supporting logics that continue to enhance its replicability.

First, the small kitchen garden relies on a strong supply chain and digital capabilities to create an efficient standardized operation model, such as using digital empowerment to achieve standardization in various aspects like dishes, services, and store expansion, including trialing cooking robots in some stores to ensure precise seasoning and stable taste.

Second, the small kitchen garden has an experienced management team and a unique talent development system, establishing a standardized employee promotion system. Internally, a mentor-apprentice training system is implemented, supplemented by certain performance incentives, thus enhancing team cohesion in a more intimate and mutually beneficial way, accumulating talent for the enterprise. As of the last feasible date, over 90% of its existing shareholders have grown from grassroots employees in the stores, which also verifies the effectiveness of this system.

The small kitchen garden has also created brands such as 'Guan Di', 'Fu Xing Lou', and 'Cai Shou', promoting the development of the brand matrix, and is expected to leverage the operating experience of 'small kitchen garden' stores and the supply chain system to 'replicate' its success. Among them, 'Cai Shou' is positioned in China's community dining market, which has enormous potential and expected strong growth momentum.

Looking ahead, the current small kitchen garden has a strong expansion logic, expected to release more performance potential, including the possibility of enhancing profitability with brand development and scalability, and is incubating more growth curves, providing sufficient imaginative growth space for its future.

Performance shows steady growth, with profitability surpassing the industry.

More intuitively, performance is the touchstone of the business model, and through the performance of the small kitchen garden, one can clearly see its strong operational resilience and profitability, and in the Hong Kong stock market, the value will ultimately return to fundamentals and performance, thus forming a strong value logic.

According to the prospectus, the small kitchen garden has achieved continuous growth in revenue and net income over the past few years, particularly delivering excellent performance in 2023 despite pressure on consumer spending.

From 2021 to 2023, the small kitchen garden's revenue was 2.646 billion yuan, 3.213 billion yuan, and 4.549 billion yuan, with a year-on-year growth of 41.6% in 2023; net income was 0.227 billion yuan, 0.238 billion yuan, and 0.532 billion yuan, with a year-on-year growth of 124.0% in 2023, corresponding to profit margins of 8.6%, 7.4%, and 11.7%. According to Frost & Sullivan's data, based on the store revenue in 2023, the small kitchen garden has also become the number one brand in China's public convenience Chinese dining market.

This year, dining enterprises face more severe growth challenges, the consumer environment continues to be under pressure and faces intensified competition, and the profitability of dining enterprises is generally declining, with even large dining enterprises announcing losses. In contrast, the revenue and net income of Little Garden are growing against the trend, maintaining a continuous growth trend.

In the first eight months, Little Garden's revenue increased by 15.4% year-on-year to 3.544 billion yuan, and net income grew by 1.5% year-on-year to 0.401 billion yuan, with a profit margin remaining at a relatively high level of 11.3%. This performance fully demonstrates its excellent operational resilience and indicates that its revenue generation and profitability surpass the industry average.

Behind the high profit margin, it is attributable to Little Garden's optimized cost structure, scientific management system, strong supply chain, centralized procurement advantages, and continually increasing brand influence. These factors enable Little Garden to effectively control costs and possess strong bargaining power, allowing it to obtain quality raw materials and services at competitive prices.

It can be seen that from 2021 to 2023, the cost of raw materials and consumables as a proportion of revenue for Little Garden has decreased from 34.5% to 31.5%, with 32.2% in the first eight months of this year; expenses related to store leasing and property management have fallen from 10.2% to 7.9%, with 9.0% in the first eight months of this year, showing an overall trend of improvement.

At the same time, the labor efficiency of Little Garden's stores is steadily improving, with monthly labor efficiency for 2023 at 25,789.6 yuan, a year-on-year increase of 16.3%, and 25,652 yuan in the first eight months of this year.

From ingredients to rent and labor, Little Garden has positive expectations on the main "cost mountains" of dining enterprises, driving cost optimization.

Following this logic, looking to the future, as Little Garden continues to expand, it is expected to further release potential in revenue and profits.

Multiple positive factors are driving the potential for supporting higher valuations.

In addition, the valuation level and investment opportunities of the small garden can be understood and grasped from two directions.

Firstly, from a timeline perspective, as mentioned at the beginning, the recent revival of the Hong Kong IPO market and the bullish Star Stocks in the consumer sector have triggered an investment boom, providing a good opportunity for the small garden to go public. This is because, under generally positive market conditions, initiating an IPO is more likely to achieve high valuations, or to truly showcase its intrinsic value, with the small garden benefiting from this favorable wind.

At the same time, a series of incremental policies are driving the re-evaluation of Chinese assets, with Brokerages generally optimistic about the internal demand bull, technology bull, and performance growth directions in industry allocation. Dining is a typical high-quality internal demand track, and given the outstanding performance of the small garden, it is expected to enjoy a higher valuation level.

The pro-cyclical properties of the dining industry are also strong, making it attractive for layout during the year-end market. Referring to the perspective of Soochow, comparing the current situation to 2012, 2014, and 2022, as macroeconomic events gradually unfold at the end of the year and beginning of the new year, market styles may shift towards Large Cap pro-cyclicality.

Secondly, from the development stage perspective, according to historical experience, the rapid expansion period is a good investment node for brand dining enterprises, which usually leads to a double effect of performance and valuation.

For example, in September 2018, HAIDILAO went public on the Hong Kong Stock Exchange, with the capital market granting it over 50 times PE at that time, achieving a peak Market Cap in February 2021 with a cumulative increase of over 240%, coinciding with its accelerated expansion period; in January 2020, JIUMAOJIU was officially listed on the Hong Kong Stock Exchange, with a hundred times PE upon listing, coinciding with the accelerated expansion period of the TAIER pickled fish brand.

Looking again at SUPER HI and DPC DASH, which went public in March last year, their stock prices have cumulatively increased by over 170% and 70%, respectively, and have still shown strong performance even against the backdrop of liquidity "discounts" in the Hong Kong market, as they also find themselves in an accelerated expansion phase, with investors already casting their votes with "real dollars."

In summary, we can clearly see the value logic of the small garden is relatively clear and robust, with points of interest from the model to performance and valuation levels, overall demonstrating strong investment attractiveness. At this time, there is reason to hold optimistic expectations for such a small garden, hoping it can rekindle the trend of dining IPOs, so it may be wise to keep an eye on it.