Hong Kong market downs much-needed Friday drink

Bar Pacific group

10/09/2021 09:39

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Pete Sweeney
    HONG KONG, Sept 10 (Reuters Breakingviews) - Traders in Hong
Kong started happy hour early on Friday. Chinese
bar operator Helens International  9869.HK  shot up 22% on its
first day of trading, raising $343 million at a hoppy 28 times
forward earnings, per Refinitiv IFR estimates. Ordinarily, pubs
tend not to list for good reasons, and in other times investors
may have been more leery. But with President Xi Jinping swiping
at technology giants, property and luxury, the
company’s low-tech proletarian flavour went down easy.  
    Unlike coffee or hamburgers, it is hard for bar concepts to
travel; tipplers seek places with character, so apart from
airport establishments and hyper-specialised sports pubs,
most watering holes are individually owned, or part of small
clusters. Given low barriers to entry, the sector is not
particularly profitable. Helens earned only $4.6 million
in adjusted net profit in the first quarter – roughly $9,000
per bar - but unadjusted, it posted a net loss margin of
20.6%. Peer performance offers
little encouragement. London-listed J D Wetherspoon  JDW.L , one
of the world’s few listed pub chains, has yielded a
miserable pandemic-induced negative 54% return on equity over
the last 12 months, per Refinitiv data.  
    As for investors, if restaurants can be auditing nightmares
– witness the disaster private-equity firm CVC Capital Partners
walked into with its investment in Sichuan chain South Beauty in
2014 – imagine checking the books at Chinese bars. Liquidity and
governance risks are implicit. Shares in Hong Kong’s tiny Bar
Pacific  8432.HK  frothed up 1,300% on its opening day
in 2017 before plunging 99% and flatlining.  
    Helens has tried to standardise. It sells its own-brand
beer, including something called “milk beer”, and centrally
controls the music playlists in its 500-some establishments. But
its clientele are college students, recent graduates and English
teachers; Helens doesn’t push craft ale or cocktail lists, nor
is it app-powered. These are dive bars, and that’s
not necessarily bad with Xi lashing out at
wealth, westernisation and user data abuses.  
    The day-one pop was higher than the average 18% rise
companies have logged in Hong Kong this year,
per Dealogic data. It could all end in boozy tears,
but local traders, watching the Hang Seng Index fall 4% this
year as initial public offerings slow, understandably wanted a
stiff drink. 
    Follow @petesweeneypro https://twitter.com/petesweeneypro on
Twitter
    
    CONTEXT NEWS
    - Shares of Chinese bar chain Helens International traded as
high as HK$25.75 each on its Hong Kong stock-market debut on
Sept. 10, up 30% from the initial public offering price of
HK$19.77 per share. 
 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Helens prices HK IPO at mid-point to raise HK$2.67bn   
 urn:newsml:reuters.com:*:nIfpjNN7y
Helens prospectus     http://www.etnet.com.hk/corpan_cache/get_file.php?n=3d7f6hdKYeACAZH1w2ycATrplmkylCilUyk2ZRqQxEwatwvMPOXnvHWobFIXRfBLrb5FgNP5z1ZHNF7439zotJip
 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Antony Currie and Karen Kwok)
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