China’s seafood restaurants take hit from coronavirus outbreak, but remain enticing for investors

The share price of a fish-focused Chinese restaurant chain that scored an oversubscribed initial public offering in January is taking a hit from the coronavirus outbreak.

Shares of Jiumaojiu International Holdings Ltd. dropped from HKD 10.00 (USD 1.28, EUR 1.16) on January 20 to HKD 8.00 (USD 1.02, EUR 0.93) on 3 February as investors worried about the impact of restaurant closures on the company’s earnings.

Guangzhou, China-based Jiumaojiu, which raised USD 267 million (EUR 241.5 million) from its IPO last month, operates the Tai Er chain, whose “sauerkraut fish” has been a big hit with younger consumers. The chain serves bass, carp, tilapia, and cod in casual dining settings located mostly in malls.

China’s key Shanghai index dropped 8 percent on return to trading on Monday, 3 February, a sign of investor fear and gloom as the coronavirus spreads. Markets across Asia were also struggling as investors begin to factor in the impact of the coronavirus in future earnings. Their calculations will have to include the fallout from an expected drastic drop in China’s outbound tourist numbers. Chinese tourists accounted for one-third of Japan’s visitor total last year, and around one-third of Vietnam’s total. It remains to be seen what the impact of a partial travel ban instituted over the Chinese New Year holiday had on retail and restaurant sales in the region, which normally sees robust sales, especially to Chinese tourists.

Despite the drop in its stock price, investors are likely to continue flocking to firms like Jiumaojiu, which target consumer growth in China, in contrast to many of the state-owned industrial stocks that dominate the stock market, which are focused on heavy industries suffering overcapacity and debt issues.

Operating 328 outlets nationwide, up from 141 in 2016 – most self-operated – Jiumaojiu offers a promising alternative to the export market for China’s seafood producers, especially as it aims to triple its restaurant total with the money it raised from its IPO. Yet with a debt ratio of 38 percent, Jiumaojiu will need to pay down some of its leverage. Nonetheless, in the first half of 2019, the company grew revenues by 41.5 percent to CNY 1.23 billion (USD 172 million, EUR 158.6 million) and raised profits by 87.6 percent to CNY 102 million (USD 14.3 million, EUR 13.2 million). 

Jiumaojiu has been latched onto by investors hungry for exposure to China’s consumer markets, as has the Haidilao hotpot chain, which also uses tilapia and carp. Both are traded on the Hong Kong Stock Exchange. However, restaurant chains remain poorly represented on China’s stock markets, in part due to the fragmented nature of the market.

The appetite among investors for firms like Jiumaojiu derives largely from income growth in China’s cities. While China’s growth is slowing, the country’s demographic pressures will limit the drop as employers compete for a shrinking pool of workers.  

Photo courtesy Bennie/Shutterstock


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