Operates a popular Japanese restaurant in Hong Kong. Sufu House Group operates a diversified restaurant portfolio of 10 brands (figure 1) and 34 restaurants in Hong Kong. Six restaurants are Chinese food and 28 are Asian food (mainly Japanese), of which Niu Jiao, a franchised Japanese barbecue brand, and its own Japanese hot pot brand, beef shabu pan, are particularly popular. The group ranks second in the full-service Japanese food market in Hong Kong (with a market share of 7.9%).

The operating efficiency of Asian restaurants is higher than that of Chinese food. The Group has more than 30 years of experience in operating Chinese restaurants, but Asian restaurants have been the driver of its growth over the past decade. The contribution of Asian food to group revenue has been increasing (for example, Japanese food contributed 60% of revenue in 2017, compared with 50% in 2015) (figure 2). Compared with Chinese restaurants, the group's Asian restaurants enjoy higher operating profit margins, per capita customer consumption (figure 3) and turnover rate (3.81 times for Asian franchise brands and 2.46 times for Chinese food). And a shorter break-even period (Asian food is about 2-5 months, Cantonese food is about 14-17 months).

Focus on the Hong Kong market to reduce implementation risk. The group plans to open 27 new restaurants in Hong Kong with HK $155 million (accounting for 90% of the net IPO proceeds) by the end of 2020, mainly Asian cuisine (19 are franchised brands and 4 are private brands). Although the Group has obtained the exclusive sub-license to operate the Niujiao brand restaurant in South China, it has no specific plan to open any restaurant in mainland China. It intends to conduct market research and feasibility study before deciding whether to expand in the mainland. As the Group has successful experience in introducing overseas franchised brands to Hong Kong, we believe that it is much less risky to focus on the Hong Kong market for the time being to replicate this model than to actively enter the mainland.

Actively improve operational efficiency and cost savings. The Group has planned a series of improvement measures, including the rental and construction of a new central processing and logistics centre in 2019 to cope with business expansion, and increase the application of electronic menu and ordering system, mobile payment and e-wallet platform, high-speed serving and receiving system, etc., in order to enhance service efficiency and reduce staff costs.

The main risks are: (1) the uncertainty of obtaining or renewing the franchise license; (2) the increase in rental expenses; (3) the capital expenditure of the expansion plan may lead to a significant increase in depreciation expenses; and (4) the enforcement risk of entering mainland China and other Asian countries.