Preview of New Stocks in US Stocks | Hong Kong restaurant chain Niu Da Ren: fluctuating performance, industry "shallow waters and many fish"

As is well known, besides being labeled as the "International Financial Metropolis" and "Shopper's Paradise," "Gourmet Capital" is also a major label for Hong Kong. From street vendors to small eateries, traditional establishments to upscale restaurants, elegant Cantonese cuisine to modern fusion cuisine, Hong Kong offers a unique array of culinary delights in its small streets, alleys, and towering buildings. In 2024, the overall catering market in Hong Kong is showing signs of recovery. According to the President of the Hong Kong Catering Industry Association, Wong Jiahe, based on data from the past five months, the recovery of the catering industry in Hong Kong has reached around 85% of pre-epidemic levels. On the first day of the National Day Golden Week, the catering industry in Hong Kong made 300 million in business, matching last year's National Day figures. Some industry insiders predict that the total business volume in the catering industry in October will reach 9 billion, close to the 10 billion before the epidemic. As Hong Kong's catering industry gradually recovers, related catering enterprises have also become active in the secondary market. On December 3, Niu Daren, which operates 12 Taiwanese hot pot and barbecue restaurants in Hong Kong, announced its initial public offering (IPO) terms. The company plans to issue 2 million shares of stock at a price of $4 to $5 per share, raising $9 million. Based on the midpoint of the proposed price range, Niu Daren's market value will reach $77 million. In mid-November of this year, Niu Daren formally submitted an IPO to the U.S. Securities and Exchange Commission (SEC), applying for the stock symbol "MB" and seeking to list on the Nasdaq. The company first submitted a confidential application to the SEC on July 3, 2024. Headquartered in Hong Kong, the company is a catering group that provides Taiwanese cuisine, mainly hot pot and barbecue. The company opened its first restaurant in 2019 and currently has 12 restaurants under the Niu Daren and Anping Barbecue brands. What is curious is that originating from Taiwan, thriving in Hong Kong, and expected to go public on Nasdaq, will Niu Daren, which has moved through multiple locations, suffer from "cultural shock"? As performance fluctuates, debt remains high In September 2019, Niu Daren's first flagship store was born, followed by the opening of the second store in November of the same year, and the brand was officially launched on November 16. In February 2023, Niu Daren's new subsidiary "Exploding Hotpot" entered Causeway Bay, featuring authentic Taiwanese stone hotpot. As of 2024, Niu Daren operates a total of 12 restaurants under the Niu Daren and Anping Barbecue brands. As an upscale catering group, Niu Daren focuses on the high-end consumption market, mainly offering Taiwanese cuisine, including hot pot and barbecue. The ingredients are fresh, some are directly imported from Taiwan, and a variety of hot pot bases are offered, such as Grandma's Health Soup Hotpot and Emperor's Ginger Duck Hotpot. With the resurgence of the catering industry in Hong Kong in 2024, Niu Daren's revenue and net profit have also shown signs of fluctuating recovery. According to the prospectus, in 2022-2023, Niu Daren achieved revenues of HK$457 million and HK$532 million (US$68.15 million), an increase of 16.41% year-on-year. The corresponding net losses were HK$33.4 million and HK$37.45 million (US$4.8 million), respectively, with the loss amount further widening. In the first half of 2024, the company achieved revenue of HK$244 million (US$31.29 million), a 5.06% year-on-year decrease; and net profit of HK$40.15 million (US$5.14 million), a significant turnaround from a loss of HK$15.84 million in the same period of 2023. Overall, while Niu Daren's overall performance is showing signs of recovery, the performance itself is unstable. It is worth noting that despite the recovery of the catering industry in Hong Kong, Niu Daren's average customer spending, average seat turnover rate, and average daily revenue per restaurant have all declined: as of the first half of 2024, the company's average customer spending was HK$245.5, compared to HK$267.6 in the same period of 2023; the average seat turnover rate is approximately 1.7 times per day, down from 2.0 in 2023; and the average daily revenue per restaurant is around HK$81,000, a decrease from HK$111,000 in 2023. Amidst fluctuating performance, Niu Daren's high debt remains a concern, and the company's liquidity has visibly become tight. According to the prospectus data, as of June 30, 2024, the company's total liabilities amounted to HK$285 million, total assets were HK$321 million, and cash and cash equivalents were HK$124 million. With high levels of indebtedness, the company faces pressure in meeting short-term liabilities. In the same period last year, its total liabilities were even higher, at HK$397 million, against total assets of HK$393 million, resulting in an asset deficit of HK$0.04 million. Through the company's fundraising objectives, it is clear that the net proceeds obtained in this issuance will be used to establish new restaurants and franchise operations in Hong Kong and overseas to expand the company's restaurant network, marketing and branding activities, production and sale of packaged hot pot bases, and restaurant upgrades, among other things. Hence, it is not difficult to understand the company's intention to go public in the U.S. despite financial pressures. Taiwanese cuisine enters the Hong Kong market, "plenty of fish in the sea" Due to the impact of the epidemic from 2019 to 2020, the overall market size of the catering service industry in Hong Kong decreased by about 29.4% year-on-year. However, in 2021, with the easing of the epidemic's impact and relaxation of catering restrictions, the catering industry in Hong Kong has been on the path of recovery along with the overall economy. Since 2023, the cancellation of border controls and preventive measures, coupled with the resurgence of local demand and the recovery of the tourism industry, have led to a strong recovery in the catering industry in Hong Kong. The market size of the catering industry in Hong Kong reached HK$109.5 billion in 2023. Looking ahead, it is expected that the overall market size of the catering service industry in Hong Kong will reach HK$134.8 billion from 2024 to 2028, growing at an average annual rate of about 4.3%. In terms of cuisine, Cantonese cuisine accounts for over 80% of the market share in Hong Kong within mainland Chinese cuisines. Among Asian cuisines, the market share of Taiwanese cuisine is about 32.3% in terms of revenue, with the market size expected to reach approximately HK$43.9 billion by 2028. Western cuisine accounted for a c9.9%, estimated to reach around 12.7 billion Hong Kong dollars by 2028.However, it should be noted that the most obvious characteristic of the current Hong Kong catering market is "intensified competition", with many catering establishments vying for the attention of the same customer base. According to Hong Kong's Census and Statistics Department, in 2022, there were more than 14,900 catering enterprises in Hong Kong, of which about 90% were small and medium-sized enterprises with fewer than 50 employees. With the rapid recovery of the tourism sector and the full reopening of border points in 2023, it is expected that about 15,300 participants will enter the market in 2023. In the Chinese and Asian food market, five groups, including Maxim's Group, Tao Heung Group Limited, FULUM GP HLDG Limited, Good House Holdings, and Taste Group, represented by local chain stores, occupy about 10.3% of the market share. As of December 31, 2023, the top three Taiwanese restaurant brands accounted for approximately 20.8% of the overall market share. The group composed of the Beef Master brand led by Beef Master and Anping BBQ brands is the largest Taiwanese food company in Hong Kong, occupying about 9.7% of the market share. As can be seen, although the brands under Beef Master perform well among Taiwanese restaurant brands, in the environment of "many small fish in the water," the company's competitive pressure should not be underestimated. In order to stand out and maintain an advantage in the fiercely competitive Hong Kong catering market, Beef Master will likely need to continuously innovate dishes, optimize services, and enhance brand image. In summary, under the influence of fluctuating performance, increased uncertainty, intensified competition in the industry, and increased competitive pressure, the development pressure faced by Beef Master is evident at present, and this undoubtedly means that the company's IPO may not be so easy.