Why Yum China will not fly?
Yum China (09987.HK) has all the ingredients for a successful public offering, but I wonder if it would fly.
The China largest restaurant operator with near 10,000 outlets is to debut next week with all eyes watching how Chinese investors would love the KFC and Pizza Hut franchise.
Eat, after all, is a safe bet in China no matter how bad the economy is.
As Yum China chief executive Joey Wat puts it in the letter from CEO, the common phase “have you eaten?” is how neighbors and friends greet each other on the streets and alleys of China, more intimate than “how are you,” because “this simple phrase instantly brings people closer and crystalizes the importance of food and eating in the daily lives of people in China.”
Since setting up its first store near Qianmen in Bejing in 1987, KFC became the first-ever restaurant in China and became an instant hit. For the next 30 years, the chain kept growing through opening more stores to now close to 7,000 and diversify into Pizza Hut, COFFii & JOY, Taco Bell and alongside acquiring hotpot chain Little Sheep.
Yum China, a spin-off from US-listed Yum! Brands, shall have a market capitalization of around HK$196 billion assuming it can attain the top range of the offering price, which is smaller than Haidilao (06862.HK), the No.1 hotpot company now worth about HK$280 billion after its share prices tripled in less than two years.
Despite a 17 per cent revenue drop in the six-month ended 30 June, 2020 due to the epidemic, Yum China is on track for a better second half as China tries to emerge from the once-in-a lifetime crisis.
In Yum chief executive words, “Good times build confidence; bad times build character”. Yum admitted the COVID-19 pandemic had presented unprecedented challenges and exerted extreme stress on its operations and on employees.
Well, KFC has been beating its United States rival McDonald in the world’s most populated country. But it might not provide as much excitement as those Chinese Nasdaq-listed companies returning home.
Yum China’s offering in its Hong Kong secondary listing was reportedly only lukewarm with a mere 6.7 times of over-subscription on its first day of public offering. Analysts expect stocks might go up around 10 per cent on the first day upon listing.
They also note the similarity between Yum China and Budweiser Brewery APAC (01876.HK) , a spin-off from the world’s largest beer maker AB InBev, which was still below its IPO price from last September, despite that fact that its Chinese rivals – China Resources Beer (00291.HK) and Tsingtao Brewery (00168.HK) – surged to record high this year.
I guess that showed Chinese investors prefer to chase Chinese stocks, for whatever reasons.
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