Haidilao gains US$696 million in market value as Chinese hotpot chain shuts one-fifth of restaurants to halt losses, stock rout

·3-min read

Haidilao International gained about HK$5.5 billion (US$696 million) of market value after the Chinese hotpot chain announced a plan to shut almost one-fifth of restaurants because of poor operating results.

The firm will close or suspend about 300 outlets by the end of this year, citing low customer traffic and unsatisfying results from operations. Some restaurants will be temporarily closed for no more than two years and no employees will be laid off, it said. It operated 1,597 restaurants as of June 30, 2021.

The stock jumped 4.8 per cent to HK$22.05 at the close of trading on Friday. The stock rose 5.5 per cent on Friday from the lowest level since February 2019, making it the best two-day advance in two months.

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It will continue to “pay attention to the restaurants with unsatisfying results of operations, including overseas restaurants, and take improvement measures accordingly,” the Beijing-based group said in an exchange filing late Friday.

Since ending 2020 with a 91 per cent gain, it has been one painful slump for shareholders. The stock has lost 59 per cent of its value since becoming a Hang Seng Index constituent on March 15, wiping out more than HK$184 billion of its capitalisation. The index fell 12 per cent over the same period.

Co-founders Zhang Yong and wife Shu Ping are Singapore’s fourth richest with a combined US$14 billion fortune, according to Forbes.

A resurgence in Covid-19 cases in mainland China, where the bulk of its restaurants are located, has undermined its expansion plan. Haidilao opened 299 new outlets in the first six months this year, after adding 530 in 2020.

Haidilao co-founder and chairman Zhang Yong and his wife Shu Ping are Singapore’s fourth richest in Forbes’ billionaires list. Photo: Getty Images
Haidilao co-founder and chairman Zhang Yong and his wife Shu Ping are Singapore’s fourth richest in Forbes’ billionaires list. Photo: Getty Images

About half of Chinese hotpot restaurants folded in 2016 and 30 per cent went out of business in 2019, according to a research published by iiMedia Research in September. The inability to find their market niche, lack of innovation and indiscriminate store expansion contributed to the high closure rate, it added.

In the first half, Haidilao recorded 110 per cent growth in its profit to 96.5 million yuan (US$15 million) from a year earlier. Revenue jumped 106 per cent to 20.1 billion yuan. Average table turnover rate fell to three times per day from 3.3 times in 2020.

The group aims to slow down expansion and refrain from embarking on large-scale store opening if the average table turnover rate is less than four times per day, according to its filing.

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