The Chinese government’s escalating restrictions imposed to contain a rise in Covid-19 cases is having an impact on local businesses as a leading Chinese hot pot chain’s market value dwindled by $4 billion in a span of just three days.
There was a 7.5% drop in the stocks of Haidilao International Holding on Wednesday as the share price touched the lowest level since March 2019. So far this week, the stock has now lost 20% of its value, making it the worst-performing stock on Hong Kong’s Hang Seng Index (1).
The Chinese government has moved swiftly to impose back severe restrictions on cross-province travel tours this month, as a small resurgence of Covid-19 cases in the northwest region of the country swiftly spiraled into a country-wide spike, which has now threatened a fledgling recovery in retail spending in the country.
Last week, a little more than 150 new Covid-19 infections were discovered on the mainland which prompted health officials to warn that the outbreak might get worse.
According to Credit Suisse (Hong Kong) analyst Veronica Song, the chances of recovery for Haidilao is still uncertain despite the fact that the firm is likely to close more loss-making shops to boost its profitability.
“The company has been struggling with slower than-peer recovery due to dilution of poor performing stores,” she wrote in a Tuesday note, cutting the target price on the stock 20% to HK$25.5.
Through this week, there was a drop of 3.1 per cent in consumer staples in Mainland China which was better than their Asian counterparts. The benchmark CSI 300 Index fell 1.2% over that time, following the 0.3% drop in the MSCI Asia Pacific Index (2).
China-based Haidilao International is principally engaged in the restaurant operation business and operates hotpot chain restaurants under the brand of Haidilao.
The business of the company also includes food takeaways, as well as the sales of condiments and ingredients. The company operates its businesses mainly in the Chinese domestic market.
Haidilao, not long ago considered to be China’s biggest hot pot chain, showed signals of a slowdown in its business earlier this month as it announced reducing its planned rollout of new restaurants and expanding the diversification of its fare.
That was in sharp contrast to its rapid expansion during the coronavirus pandemic.
According to analysts, this strategy of the company was in response to a slump in consumer spending.
The popularity of Haidilao was driven in recent years by its ability to appease customers waiting in hours-long queues for its soups by offering them free manicures, snacks, and shoe shine.
“We will open stores based on market demand, and compared to before, will appropriately slow down our opening pace,” the company said in a written response earlier this month to the news agency Reuters.
During the pandemic last year, Haidilao was initially undeterred as it embarked on an expansion spree in early 2020. It had increased the number of stores two folds in the expansion drive and currently is about 1,600 in number.
(Adapted from Bloomberg.com)