Hot-Pot IPO: A Chinese Chain Serving Pig Brains and Giving Manicures

By Anonymous

A Chinese chain of hot-pot restaurants—where diners prepare their own dishes by dunking meat, innards and vegetables in bubbling spicy soup—is cooking up a $12 billion valuation that would match Domino’s Pizza Inc.

Haidilao International Holding Ltd., which says it is China’s largest hot-pot group by sales, began taking orders on Monday for a Hong Kong initial public offering that could raise $801 million to $963 million, according to a term sheet.

At the top of the range, that would imply a market capitalization of $12 billion—in line with Domino’s, the sixth-most valuable company in the U.S. S&P 1500 restaurant subindex.

Haidilao, which has grown fast, offers patrons ingredients such as goose intestines and pig brains to cook at their tables by dunking them in hot broth, typically a numbingly spicy soup from its home province of Sichuan. Where many Chinese restaurateurs are brusque, it has stood out by offering extras such as protective hair bands and shoe shines for guests as they wait for tables.

David Yu, managing director at Wan Lung Securities Ltd., said he was impressed by the chain’s popularity among younger Chinese people. He recently visited a branch in the coastal city of Xiamen in the middle of the night and found a long line. “People were waiting patiently to get a table while enjoying the services offered by Haidilao, which include free massage and manicures," he said.

Chairman Zhang Yong, 47, and his co-founders used their savings to open the company’s first hot-pot restaurant in Jianyang, Sichuan province, in 1994, according to the listing prospectus. Haidilao has since grown to more than 360 restaurants. More than 90% are in mainland China, with the rest in Taiwan, Hong Kong, Singapore, South Korea, Japan and the U.S.

Net profit rose 22% in 2017 to 1.19 billion yuan ($173.9 million), on revenue up 36% to 10.64 billion yuan. The IPO will consist entirely of new shares and will largely help fund the group’s expansion.

The IPO comes as Hong Kong’s benchmark Hang Seng index has fallen 19.7% from a peak in January. Five cornerstone investors—including China-focused investment firm Hillhouse Capital Group and Morgan Stanley— have committed to invest a combined $375 million no matter where in the range it prices.

Haidilao could increase the deal’s size by 15% if demand is strong. The listing, sponsored by CMB International and Goldman Sachs Group Inc., concludes on September 26.

Write to Joanne Chiu at [email protected]