Haidilao International Holding Ltd: Initial Public Offering for Expansion

On September 26, 2018, the Chinese hotpot chain Haidilao International Holding Ltd. launched an initial public offering, during a time of ongoing trade tensions between the United States and China, and started trading of the company’s shares on the Hong Kong Stock Exchange. The Beijing-based company sold 424.5 million shares at HK$17.8 (US$2.27) per share, which was on the high end of the indicative price range. Its price-to-earnings ratio of 30.2 was higher than that of its peers, which ranged from 16 to 27. In addition, the CSI 300 Index, which monitored the performance of 300 stocks on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, was down 27 per cent year-to-date at that time. Another key factor was that the company’s stock would likely be included on the Stock Connect program that enabled access from Mainland China to the Hong Kong Stock Exchange. Investors had an opportunity to value the company at the time of the initial public offering launch and analyze the information provided in the company’s prospectus. Based on their assessment, investors had to decide if the company’s stock was a good investment.

This comprehensive valuation exercise can be used in courses on corporate finance, financial management, or mergers and acquisitions at the advanced undergraduate or graduate program levels. This case presents an opportunity for students to learn about company valuation techniques and analysis. Students will understand the key factors that can affect the pricing of an IPO, compare the performance of Haidilao to industry benchmarks, apply various valuation methods, and determine which valuation method is most appropriate for Haidilao. After working through this exercise, students will have developed the ability to complete the following tasks:<ul><li> Calculate an unlevered market beta from competitor peer companies.</li><li>Determine the weighted average cost of capital (WACC).</li><li>Undertake a discounted cash flow valuation.</li><li>Conduct a relative valuation analysis using peer company multiples.</li><li>Conduct a precedent transaction analysis using historical transactions.</li></ul>

• IPO
• valuation
• relative valuation
• hot pot
• restaurant
• stock exchange