On December 20, the Star Daily reported (Reporter Xu Cihua) that the Hong Kong stock exchange welcomes a Huimin listed company.

Today, Xiaocai Garden officially listed for Trade on the Hong Kong Stock Exchange Main Board. The opening price was 9.00 Hong Kong dollars, up 5.88%, with a trading volume reaching 13.156 million Hong Kong dollars. Recently, Xiaocai Garden announced the allocation results, with a Global offering of approximately 0.101 billion shares, where the Hong Kong public offering accounted for 10% and the international offering accounted for 90%. The final offer price was 8.5 Hong Kong dollars per share, raising approximately 0.795 billion Hong Kong dollars globally.

It is worth noting that Xiaocai Garden has a betting agreement with Jiahua Capital. Prior to the IPO, Jiahua Capital was Xiaocai Garden's only external investor - it invested a total of 0.5 billion yuan in 2022 and 2023, holding 7.01% of Xiaocai Garden's shares before the IPO. According to calculations post-IPO, Jiahua Capital's shareholding will be 6.4%, and based on an issued Market Cap of 10 billion Hong Kong dollars, the value of Jiahua Capital’s shares would be 0.64 billion Hong Kong dollars (approximately 0.6 billion yuan), resulting in a net gain of 0.1 billion against the total investment of 0.5 billion yuan.

The prospectus disclosed that if Xiaocai Garden cannot go public or the Market Cap post-listing is less than 130% of the valuation after the previous investors' investment, it will issue new shares to Jiahua Capital for free or at the lowest price permitted by law, or provide cash compensation to Jiahua Capital.

In this regard, Bai Wenxi, an expert from the Whale Platform Think Tank and Chief Economist of the China Region of the Chinese Enterprise Capital Alliance, believes that Xiaocai Garden's burden of the betting agreement undoubtedly increases its financial risk. If the Market Cap does not meet expectations, it could have a significant impact on the company's financial condition, including but not limited to equity dilution, tight cash flow, and increased financial costs.

The turnover rate and per capita Consumer spending have clearly declined.

Xiaocai Garden is a dining company that started in Anhui and currently has multiple brands including "Xiaocai Garden," "Guandi," "Fuxing Building," and "Cai Shou," with more than 90% of its income coming from "Xiaocai Garden."

According to the prospectus, from 2021 to 2023, the number of Xiaocaiyuan stores was 379, 422, and 542 respectively. As of November 28, 2024, Xiaocaiyuan has a total of 663 directly operated stores, nearly all under the "Xiaocaiyuan" brand, covering 146 cities or counties in 14 provinces of China, with 0.082 million registered members. In total, the store numbers in Jiangsu and Anhui provinces account for over 60%.

The prospectus shows that Xiaocaiyuan plans to use about 40.0% or 0.314 billion Hong Kong dollars of the funds raised from this IPO to continue expanding its store network. It plans to open approximately 160 and 180 "Xiaocaiyuan" stores in 2025 and 2026 respectively, aiming to operate about 1000 "Xiaocaiyuan" stores by the end of 2026. Specifically, Xiaocaiyuan plans to open 96 and 111 stores in existing markets in 2025 and 2026 respectively, and to open 63 and 66 stores in new markets that are not yet covered, such as Fujian, Hebei, and Henan.

In terms of financial data, the prospectus reveals that Xiaocaiyuan generated revenue of 2.646 billion yuan, 3.213 billion yuan, 4.549 billion yuan, and 3.544 billion yuan in 2021, 2022, 2023, and the first eight months of 2024 respectively. The net income was 0.227 billion yuan, 0.238 billion yuan, 0.532 billion yuan, and 0.401 billion yuan, with net profit margins of 8.6%, 7.4%, 11.7%, and 11.3% respectively.

In terms of table turnover rate, from 2021 to 2023, the turnover rates of Xiaocaiyuan stores were 3.3 times, 2.8 times, and 3.2 times respectively; the turnover rate in the first eight months of 2023 was 3.4 times; while the rate in the first eight months of this year was 3.1 times.

Additionally, for the four months ending on August 30, 2024, the average expenditure per dining customer at Xiaocaiyuan was 59.5 yuan. From 2021 to 2023, the average expenditure per dining customer was 66.1 yuan, 65.8 yuan, and 65.2 yuan respectively.

In an interview with the "Star Daily", the founder Yu Yihong stated that the dining strategy of the future shows that Xiaocaiyuan, representing meals priced between 60-80 yuan, is facing challenges from small meals priced between 45-55 yuan, which is segmenting the market share. The general decrease in foot traffic has forced full-service brands to rely on takeout to compensate, thus disrupting the original survival structure of the shopping mall store model.

Need to find a second curve, planning to go overseas.

It is worth noting that the expansion of Xiaocaiyuan's sub-brands is currently not meeting expectations.

In terms of branding, in addition to the Little Garden, more dining formats have been introduced, such as Fuxing Tower, Guandi, and Caishou, among others. Fuxing Tower focuses on fusion cuisine, and Guandi positions itself as a Chinese family banquet, both starting trials from the birthplace of Little Garden, Tongling. However, the development of these two major brands has not been smooth.

According to previously released data, from 2021 to the first eight months of 2024, revenue from the 'Little Garden' stores accounted for 98.7%, 98.8%, 99.1%, and 99.0% of the company's total revenue, respectively.

As for Fuxing Tower, there were 3 stores a few years ago, but now only 1 remains, while the other stores have been transformed into Little Garden; the Guandi brand has been tested for a few years and still only has 1 store.

After the failure of the high-end strategy, Little Garden has moved downmarket, launching the community fast food brand Caishou Canteen in 2023, with dish prices ranging from 8 to 30 yuan, and an average customer spending of just over 20 yuan. According to the original plan, 200 to 400 community dining stores are expected to open between 2024 and 2026.

According to the prospectus, during the reporting period, the number of Caishou stores was 3, with a net addition of 2 stores over the course of a year.

It is reported that two Caishou stores were closed in May and July of this year, respectively. In response, Little Garden explained in the prospectus that the foot traffic in the commercial area where the store is located did not meet expectations.

It is noteworthy that Little Garden is also planning to go overseas, intending to open 1 and 3 'Little Garden' stores in new overseas markets (such as Hong Kong and Singapore) in 2025 and 2026, respectively.

In an interview with the Star Daily, founder Yu Yihong mentioned that Caishou Canteen is key to future business growth, but the ability to iterate and optimize the model still needs to be evaluated.

In his view, the Dining industry in China generally has a problem, which is the emphasis on external growth, that is, the number of new stores opened, while neglecting internal growth, which is the same-store year-on-year growth. Once the store model suffers structural damage or loses competitiveness due to competition, it will lead to weak performance growth. At the same time, if store growth is also weak, not only will performance not grow, but it will accelerate decline.

"The small vegetable garden must pay attention to the brand power and model strength of the main brand. After all, the growth of the second curve takes time," said Yu Yihong to the reporters.