Super Hi boils up overseas with New York listing application

The international arm of hotpot giant Haidilao is trying to whet U.S. investor appetites with 23% revenue growth last year and its first-ever profit

Key Takeaways:

• Singapore-based Super Hi has filed for a New York IPO to complement its current listing in Hong Kong, reporting 23% revenue growth last year and its first-ever profit
• The international affiliate of Hong Kong-listed hotpot sensation Haidilao operates 115 restaurants globally, about half in Southeast Asia

By Edith Terry

When Super Hi International Holding Ltd. (9658.HK) filed an IPO prospectus for a second listing in New York on April 26, its current Hong Kong-listed shares bubbled up by 5% the next trading day. Shares of its former parent, hotpot sensation Haidilao (6862.HK), rose even more, as investors bet that Haidilao’s international offspring could benefit from a new fund injection to speed its global expansion.

Super Hi and Haidilao are a family affair controlled by founder Zhang Yong and his wife, Shu Ping, who runs both companies, after spinning off the former from the latter in December 2022. Zhong and Shu own more than 50% of Super Hi, whose headquarters is in Singapore, and where Shu lives with their son while managing the family business.

Super Hi is reportedly looking to raise $100 million in the latest New York listing, according to media reports, although pricing of the IPO has yet to be announced. The listing would mark the fifth for one of Zhang’s companies.

Hotpots are huge in China, and Zhang is trying to export that recipe to the rest of the world. Still, Super Hi, with a market cap of HK$9.5 billion ($1.2 billion), is a minnow compared with international restaurant giants like McDonald’s (MCD.US), worth nearly $200 billion, or domestic peer Yum China (YUMC.US) worth $14 billion.

With price-to-sales (P/S) and price-to-earnings (P/E) ratios of 1.48 and 36.5, respectively, Super Hi looks quite respectable compared to some of its peers. That could be partly due to the strong name recognition enjoyed by Haidilao, which is covered by 30 Yahoo Finance analysts, who believe that Haidilao is undervalued by as much as half.

Super Hi, whose market value is less than one-tenth of its better-known former parent, has yet to gain such fame. And it may face an uphill road to attaining such status, according to Donovan Jones, a Seeking Alpha writer who follows new listing applications. “The market for Chinese cuisine restaurants continues to be highly fragmented,” he wrote. “With the firm’s lack of geographic focus, it faces strong competition in locales where it may not possess significant local knowledge.”

Super Hi has 115 restaurants, most of them in Asia and also on the U.S. West Coast, though it recently dipped its toe into the Middle East by opening an outlet in Dubai. Its revenue has increased steadily since 2019, with the exception of a 5% decline during the first year of the pandemic in 2020, including a 23% rise last year to $686 million.

Equally important, the company recorded net income of $25.2 million last year – its first profit since Haidilao began breaking out figures for its overseas business in 2019. As that happened, its net cash from operations rose from just $4.3 million in 2021 to $114 million last year.

Haidilao began expanding outside China in 2012 by opening its first restaurant in Singapore that year, followed by a second store in Los Angeles a year later. Its main U.S. focus tracks overseas Chinese who are familiar with the hotpot dining style, with 10 of its 13 American restaurants in California.

Southeast Asia base

Super Hi’s main market is Southeast Asia, which is home to 51 of its stores, or nearly half of its total. It has another 13 stores in Japan and South Korea, with three more in Canada, and another five in Britain, Australia and the United Arab Emirates. In 2022, it reorganized as a Cayman Island company to facilitate its Hong Kong listing.

According to third-party market data in the prospectus, Super Hi was the third-largest Chinese cuisine restaurant brand internationally and the largest from China based on its 2022 revenue of $558 million. It said the international market for hotpot dining was worth $34.3 billion in 2022, making up more than a tenth of the broader $306.1 billion total market for international Chinese food restaurants.

Super Hi pointed out that large global Chinese restaurant operators like itself are a relative rarity as such chains remain mostly confined to individual countries. At the end of 2022, Chinese cuisine brands with over 10 restaurants in the international market accounted for just 13.1% of the overall total, and ones operating in two or more countries were a relative rarity at just 5% of the total.

Super Hi’s success in managing such scattered assets comes from its Haidilao touch, or more precisely, the skills of its founders, who built up one of China’s most successful homegrown chains. Super Hi still trails its parent in terms of popularity, though not by much, with Haidilao reporting a same-store table turnover rate of 3.8 per day, versus Super Hi’s 3.5 times.

Haidilao’s dominance in China owes partly to its ability to standardize ingredients. It’s also known for its extra efforts to ensure customer satisfaction, doing everything from building data bases of each customer’s personal characteristics to shining customers’ shoes and offering free manicures and haircuts while they wait for tables. Similar special offerings at Super Hi restaurants include noodles that are handmade table-side.

Following a recent trend by both its international and domestic peers, Haidilao announced in March that it would launch a franchising model to complement its 1,374 self-operated stores at the end of last year, employing a strategy used by many chains to grow more quickly at a lower cost. Franchising in China has also become popular among restaurant brands seeking to tap the country’s many smaller cities where consumers are more price sensitive.

Zhang began his hot pot business in 1994 after quitting his job as a welder in a state-owned factory in the city of Jianyang in Sichuan province, with the motto “service influences a customer’s taste buds.” Early on he pledged to employ only people who took care of their parents, in a nod to the value China places on taking care of the elderly.

According to Bloomberg, Zhang provides benefits for employees like housing, which has led to low worker turnover for his China businesses. He has used his brand’s popularity both to raise capital and create a portfolio of related companies. Other earlier spin-offs included Yihai International (1579.HK), which makes hotpot seasonings, and Youdingyou (Beijing) Food, formerly listed in Beijing.

The interconnections between those various listed companies may explain Haidilao’s success in its home China market, with Yihai giving the chain greater control over its supply chain while being able to raise its own capital. But building a similar network overseas may be more challenging due to the wide range of geographies where Super Hi is building its business.

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