Author: Su Shuang
Listing: Insight IPO
At the end of 2021, a news of "Haidilao plans to close 300 stores" rushed to the hot search, although Haidilao explained that the reason was a sharp expansion strategy mistake during the epidemic, but it still triggered a lot of discussion about the hot pot catering industry.
Recently, following the Cantonese hot pot "Laowang", another company specializing in seafood hot pot, Qixintian International Holdings Co., Ltd. (hereinafter referred to as Qixintian), submitted a prospectus to go public in Hong Kong, with CMB International and Guotai Junan International as its joint sponsors.
If this success is successful, Qixintian may become the "third share of Hong Kong hot pot" after Haidilao and Sipping, but there are also voices of doubt, believing that Qixintian has a low turnover rate, subsidiaries are frequently punished, and whether the road to listing can be smooth is still unknown.
Stores expanded against the market, and the turnover rate was lower than that of peers
The full name of the store is "QixinTianpin Crab Xuan", the main title is "one pot and two eats", that is, first a pot of dry pot seafood, after eating seafood, add broth in the pot to become a pot of hot pot.
According to the prospectus, according to the information of the consulting firm Frost & Sullivan, qixintian is the largest seafood restaurant in China in terms of revenue and number of restaurants in 2020, accounting for 1.2% of the total market share of China's seafood restaurant market. According to the revenue of self-operated restaurants in 2020, Qixintian is the third largest hot pot chain restaurant in China.
In 2019, 2020 and January-September 2021, Qixintian achieved operating income of 1.285 billion yuan, 1.426 billion yuan and 1.48 billion yuan respectively.
In the same period, its net profit was 81.157 million yuan, 172 million yuan and 259 million yuan, respectively.
The rapid growth of performance is inseparable from the rapid expansion of stores, at the end of 2019, the number of stores in Qixintian was 180, at the end of 2020, it increased to 207, and by the end of September 2021, the number of stores has grown to 250.
At the same time, its per capita unit price is also rising, with dine-in customers rising from 117 yuan to 131 yuan, and takeaway customers rising from 155 yuan to 170 yuan.
Qixintian main operating data
Image source: Seven Xintian Prospectus
However, on the other hand, the turnover rate of Qixintian is not high, and the turnover rate is only 2.1, 2.1 and 2.2 respectively during the reporting period, which is a large gap compared with the lowest turnover rate of 2.5 in Haidilao and Sipping in the same industry.
The rate of seven Xintian overturning is relatively low
Image source: Qixintian prospectus, public information
Under the "wave of store closures", it is planned to open 300 stores, and the dividend of 180 million yuan before the listing will fall to the actual controller family
Qixintian stores are mainly opened in Jiangsu Province and 9 surrounding provinces, of which more than 100 are in Jiangsu Province.
Next, Qixintian plans to open about 70 new restaurants in 2022, and as of the last practicable date, 30 of them have signed leases but have not yet opened, while 7 restaurants have signed letters of intent with lessors.
It also plans to open 100 new restaurants in 2023 and 130 in 2024 respectively.
Since its establishment in 2006, qixintian has only 256 stores, and then plans to open 300 stores in three years, and the expansion intention is obvious.
However, some people believe that Qixintian's prediction of the market is too optimistic.
Previously, Haidilao and Xiafu announced the closure of 300 and 200 stores respectively, partly due to mistakes in the rapid expansion strategy, but also related to the impact of the epidemic.
Although the hot pot industry has improved in 2021, it has not fully recovered.
The share prices of the two leading companies in the secondary market have also been greatly affected, as of January 19, Haidilao closed at HK$17.48, down 79.62% from the highest point of the stock price in February 2021, and the sipping and feeding closed at HK$4.89, which is 81.83% from the highest point of the stock price in February 2021.
Qixintian's current "base camp" Jiangsu Province is a coastal area with a more developed economy and a high demand and consumption capacity for seafood.
If the follow-up to inland or underdeveloped provinces to open up, it is inevitable that "water and soil dissatisfaction" will occur.
Why Qixintian chose to go public at this time, some analysts believe that when the industry generally experiences a crisis, it is easier for companies with better operating conditions to win opportunities, but some investors believe that family businesses want to make a living by listing.
In the first nine months of 2021, the net cash used in Qixintian's financing activities was 474 million yuan, mainly due to the payment of dividends of 191 million yuan to the company's equity shareholders and the payment of 186 million yuan arising from the restructuring (acquisition of all the shares of Jiangsu Qixintian).
This also reduced Qixintian's cash and cash equivalents from $226 million at the end of 2020 to $30 million at the end of September 2021.
The actual controller of the company, Ruan Tianshu, and his brother-in-law, brother, nephew, brother's son-in-law, etc. all hold shares in the company, and together hold about 95.82% of the shares of Qixintian.
This means that about 183 million yuan of the 191 million yuan dividend fell into the hands of the actual controller family.
Shareholders "divide" the cash in the account before listing, and then borrow funds to expand, which inevitably arouses the doubts of investors, especially for family enterprises that are already weak in management.
High net profit margins or relying on employee outsourcing, service decline complaints rise
Qixintian's net profit margin rose rapidly from 6.3% in 2019 to 17.5% from January to September 2021, which is inseparable from the impact of the implementation of employee outsourcing strategies.
In 2019, 2020 and the first nine months of 2021, Qixintian's employee costs were $308 million, $261 million and $255 million, accounting for 23.9%, 18.3% and 17.2% of revenue respectively.
During the same period, Qixintian had a total of 4707, 4279 and 5269 employees respectively, including 4707, 1713 and 1834 employees respectively, and the rest were outsourced employees.
Although the hiring of outsourced employees has led to a decrease in the average cost of employees, it has also reduced the company's management of them.
In the risk factors section, Qixintian mentions the outsourcing of restaurant employees hired through outsourcing companies, so the company has limited control over them.
The weakening of control over service personnel has led to a decline in service levels to a certain extent, which has had an impact on the reputation of restaurants.
As can be seen from the public review website, many of the low score evaluations about Qixin Tianpin Crab Xuan are concentrated in the service aspect, and some customers reflect that the service attitude of the restaurant is not good, the environmental hygiene is poor, and the order of queuing and equal numbers is chaotic.
There are some similar complaints on the black cat complaint platform, and there are even customers who have encountered food safety-related problems.
For example, some customers find unknown transparent plastic objects in the dish, but they are told by the service staff that they can eat it.
Complaints from some consumers
Image source: Black Cat Complaint Platform
Poor management will not only affect the reputation of the restaurant, but also may lead to administrative penalties.
According to the National Enterprise Credit Information Publicity System, about 10 subsidiaries of Qixintian have received administrative penalties.
In December 2021, Fuzhou Qixintian Enterprise Management Co., Ltd. Fengze Yunlu Branch (cancelled) was given a warning, fined 0.10202 million yuan, and confiscated illegal gains and illegal property of 0.05101 million yuan for the compulsory provision of paid tableware suspected of infringing on the rights and interests of consumers.
Previously, in December 2018, Shanghai Qixintian Catering Co., Ltd. was fined 113,084.2 yuan by the Shanghai Songjiang District Market Supervision and Administration Bureau for food cases, and confiscated 54,960 yuan of illegal gains.
In addition, the internal control of Qixintian has also had major flaws.
According to the prospectus, in February 2018, the Suzhou Customs Anti-Smuggling Sub-Bureau launched an investigation into Jiangsu Qixintian and the company's shareholder Ruan Tianbing for suspected smuggling of general goods and articles and tax evasion.
According to the prospectus, between April 2012 and February 2018, Jiangsu Qixintian falsely declared a lower or higher price when declaring the price of live crab imported from Southeast Asian countries, resulting in a net tariff difference of about RMB780,000.
Although the court finally decided not to prosecute, Jiangsu Qixintian was recovered about 3.63 million yuan for the live crab.
According to the prospectus, the issuance of Qixintian will be used to expand the restaurant network, strengthen supply chain capabilities, working capital and general corporate purposes, and the specific amount of fundraising has not been disclosed.