“Haidilao Overseas Edition” will go on sale in the US!

Recently, Hong Kong stock listed company Tehai International Holdings Limited (hereinafter referred to as “TEHAI International”) issued an announcement stating that the board of directors decided to publicly sell American Depositary Shares for the first time on the US NASDAQ stock market to promote the dual main listing of TEHAI International. The stock code is HDL. Morgan Stanley and Huatai Securities are joint underwriters.

Gelonghui learned that Tehai International operates Haidilao hot pot restaurants in the international market. The company was listed on the Hong Kong Stock Exchange by means of introduction at the end of 2022. The stock code is 09658. Judging from the stock price trend, Te Hai International's stock price once soared to around HK$24 after it landed in Hong Kong. Then, the stock price showed a downward trend. Until February of this year, it rebounded again, but it still hasn't returned to its previous high.

Te Hai International stock price trend, image source: Gelonghui

In addition to Te Hai International, the couple Zhang Yong and Shu Ping from Sichuan also own two listed companies, Haidilao and Yihai International, which have attracted much attention in the hot pot industry. Their entrepreneurial story is quite legendary.

01

Start a hot pot business and reap the benefits of three listed companies

According to public information, the Haidilao brand was founded in 1994 by Zhang Yong, Shu Ping, Shi Yonghong, and Li Haiyan in Jianyang, Sichuan.

In order to improve the hot pot restaurant, they worked hard to research hot pot ingredients, procure fresh ingredients, improve the dining environment, and use unimaginable service to impress customers. Thanks to their efforts, the Haidilao brand grew bigger and opened more stores.

In 1999, Haidilao left Sichuan and opened a hot pot restaurant in Xi'an, then opened stores in cities such as Zhengzhou, Beijing, and Shanghai. By the end of 2023, Haidilao had more than 1,300 restaurants in mainland China, and 23 in Hong Kong, Macao and Taiwan.

As the hot pot business became better and better, Haidilao embarked on a path of global expansion. In 2012, Haidilao's first overseas store officially opened in Singapore, then entered the US, South Korea, and Japan markets in the following years, making the hot pot overseas business flourished.

Photo source: Prospectus

Haidilao has not only opened more and more hot pot restaurants, but branches have also been set up one after another to make chicken essence, hot pot ingredients, and store decoration. In 2016, Yihai International, the exclusive supplier of Haidilao hot pot ingredients, was listed on the Hong Kong Stock Exchange. In addition to TEHAI International, which was listed on the Hong Kong Stock Exchange in 2022, Zhang Yong and Shu Ping already own three listed companies. Now Te Hai International is going to the US for a double listing, which can be described as an endless scene.

Zhang Yong and Shu Ping are major shareholders of Tehai International. According to the prospectus, before this issuance, the entities controlled by Zhang Yong held a total of 47.64% of the issued shares of TEHAI. In addition to being a shareholder of TEHAI International, Shu Ping also served as the chairman and non-executive director. At the same time, Shi Yonghong and Li Haiyan also held shares in TEHAI International.

There are so many hot pot restaurants across the country, and it's rare to open thousands of stores and run three listed companies. I have to say that Haidilao and the founders behind it are smart and lucky.

02

2023 results reverse losses

As one of the representatives of Chinese cuisine, hot pot has advantages such as strong social attributes, high inclusiveness of ingredients, and freedom of combination. It can also be customized according to customer tastes, and is very popular with customers. In addition, it can prepare the bottom of the pot in advance, and hot pot restaurants are less dependent on skilled chefs, making it easier to expand output and standardize.

Photo source: Prospectus

Affected by the epidemic, the market size of Chinese hot pot restaurants declined markedly in 2020. In 2022, it rebounded to US$34.3 billion. Based on a compound annual growth rate of 8%, it will reach US$50.5 billion by 2027.

The market size of Chinese hot pot restaurants in the international market. Image source: Prospectus

Tehai International operates Haidilao hot pot restaurants in the international market. From 2021 to 2023, more than 90% of its revenue came from restaurant operations, distribution businesses, and other businesses, which accounted for a relatively low share of revenue.

In recent years, as China's international status has improved, Chinese culture has become more and more popular, and there are more and more people eating Chinese food. In this context, Haidilao's hot pot overseas business is also becoming more and more popular. By the end of 2023, the company had opened 115 self-operated restaurants in 12 countries and regions. However, Te Hai International's opening speed is slowing down. In 2021, 2022, and 2023, the company opened 22, 17, and 5 new restaurants, respectively.

Total number of restaurants in the company and changes. Photo source: Prospectus

Currently, the international Chinese restaurant market is highly fragmented, with more than 600,000 restaurants. According to the Frost & Sullivan report, Haidilao is the third-largest Chinese restaurant brand in the international market in terms of 2022 revenue.

Chinese cuisine is mainly concentrated in Southeast Asia, East Asia, North America and other regions with large Chinese immigrants. In 2023, more than 55% of Tehai International's revenue was contributed by restaurants in Southeast Asia, and about 20% of revenue came from North America.

In recent years, with the increase in the number of overseas restaurants, Tehai International's revenue continued to grow, but net profit was not reversed until 2023. According to the prospectus, in 2021, 2022, and 2023, Tehai International's revenue was about US$312 million, US$558 million, and US$686 million, respectively, and the corresponding net profit was approximately US$151 million, -US$41 million, and US$25 million, respectively.

Summary of the company's comprehensive income statement data, image source: prospectus

In 2022, as many countries successively lifted dine-in restrictions previously imposed in response to the COVID-19 pandemic, Tehai International's restaurants gradually resumed normal operations. The number of customer visits and turnover rates increased. Combined with the effects of internal management and operation improvements and profit margins, the loss margin narrowed, and the loss was reversed in 2023.

After the impact of the epidemic subsided, Te Hai International's turnover rate increased, from 2.1 in 2021 to 3.5 in 2023, but there is still a gap compared to the turnover rate of 4.1 in 2019.

The company's main performance indicators, image source: prospectus

Not only has the turnover rate not returned to pre-pandemic levels, but Te Hai International is also facing downward pressure on per capita consumption. According to the prospectus, from 2021 to 2023, Tehai International's restaurant consumption per capita has dropped from 30.3 US dollars to 24.8 US dollars.

In fact, in the context of consumption downgradation and internal industry trends, many hot pot brands are cutting prices in order to boost consumption. In 2023, Haidilao's per capita consumption has fallen below 100 yuan, and prices for Minato Minato Hot Pot and Mugi Hot Pot have also been lowered one after another. However, after the price reduction, the actual experience of consumers was not optimistic. Some netizens complained that the amount of food had shrunk when they went to eat hot pot, and they were dissatisfied with this.

Even after the so-called “price reduction,” hot pot with a per capita consumption of nearly 100 yuan was not cheap, and behind this, hot pot restaurants also faced pressure such as fluctuations in raw material prices, high labor costs, and rising rents. In particular, some brand hot pot restaurants also spent a lot of money on decoration and marketing, all of which boosted the price of hot pot to a certain extent.

Furthermore, for companies such as Te Hai International, which open Chinese restaurant chains overseas, it is not easy to maintain a high standard of service quality. At the same time, they also face multiple challenges such as integrating into local culture, adapting to local tastes and eating habits, and meeting local regulatory requirements. It can be seen that the path for hot pot to go overseas is not an easy path.

03

epilogue

After years of development, Haidilao has become the third largest Chinese restaurant brand in the international market, but it is also facing pressure such as declining per capita consumption and raw material and labor costs. For Tehai International, which has just reversed its losses, if it can successfully land in the US stock market to obtain financing, it is beneficial to support its business development, but if it wants to be recognized by the capital market, I'm afraid it will still have to continue to improve its “self-hematopoietic” ability.