Haidilao (6862.HK) Proposed spin-off international business
Haidilao (6862.HK) have proposed to spin-off of international business outside of Greater China under Company Super-Hi International. Immediately before the spin off, Super Hi will be owned 90% by the Company (6862.HK), and 10% by an employee incentive platform. The reasons for the spin-off include more focused development and strategic planning, better allocation of resources for respective businesses and to help realise the value of investment. The Company has released Super-Hi International listing documents yesterday. As of Mar’22, Super-Hi operates 97 restaurants in 11 countries. Table turnover rate has slightly improved to 2.7x as of 1Q22 vs. 2.1x in 2021. Super Hi net losses ranged between US$33-150m in FY19-21. Bank borrowings and loans from related parties amounted to US$518m, with bank balance of US$73m as of Mar’22. Of which, US$471m were settled by issuance of equity to Haidilao in June’22.
Certain funds with HK/China investing mandates are unable to invest, which may raise liquidity concerns. Overseas business may face higher competition in several countries. Other queries including the expansion plans & breakeven points of the operations. More details will be released ahead regarding the market size of the overseas biz, and spin-off timeline. While we believe the spin-off, if materialized, allows Haidilao to realize the value, the viability of the spin-off remains uncertain given the market conditions. Our last rating was a BUY.