2 Reasons Why Haidilao Might Appeal To Investors

Haidilao International Holding Ltd (HKG:6862) operates a hot pot restaurant chain in China and overseas.

Since its IPO in 2018, the company’s share price has risen about 80%, achieving a total market capitalization of more than HK$ 170 billion. Investors were confident in the company. Should they still be?

Today, we will look at two aspects of Haidilao’s business that should appeal to investors.

Outstanding track record

Haidilao has a strong financial track record. To better understand this, let’s look at a few numbers.

Between 2015 and 2018, the company increased its revenue from RMB5.8 billion to RMB 17.0 billion. Similarly, net profit increased from RMB 0.3 billion to RMB 1.6 billion. That means revenue almost tripled, while net profit grew fivefold. That strong growth was driven by new stores opening and higher sales.

And Haidilao shows no signs of slowing down.

In the first half of 2019, it opened 130 new restaurants, bringing its total number of restaurants to 593. Also, both revenue and net profit were up by 59.3% and 40.9%, respectively, when compared to the same period last year.

In short, Haidilao’s financial performance has been nothing short of outstanding.

Owner operator

Another thing to like about Haidilao is its owner-operator structure.

For those who are new to this, an owner-operator refers to significant shareholders who are also the management of a company.

At Haidilao, the senior management team owns about 85% of the company’s existing shares.

You can see this clearly in the tablebelow:

Source: Haidilao’s 2019 Interim Report

Mr. Zhang Yong, Ms. Shu Ping, and Mr. Shi Yonghong are the founders of Haidilao.

These individuals also hold senior positions in the company. Mr. Zhang Yong is the Chairman and CEO, Ms. Shu Ping is a non-executive director, and Mr. Shi Yongjong is an executive director.

This arrangement means the economic interests of the owner-operators are likely aligned with the interests of minority shareholders, allowing passive investors, like us, can benefit. Minority investors still need to be comfortable with such an operating structure before investing in the company since they will likely have little influence over major shareholders in the company.

Foolish conclusion

Haidilao appears to be a good company for investors to consider.  Its outstanding business track record and owner-operator structure will likely give investors something to look forward to in the years to come.

Nevertheless, interested investors should consider the company’s valuation before acquiring its stocks.