Despite lower valuation there, companies seek to avoid long IPO queue in the mainland

The initial public offering of Zhouheiya, a Hubei province-based fast food chain known for its spicy-braised duck neck and other ready-to-eat snacks, opened for subscription in Hong Kong on Tuesday, looking to raise up to HK$3.3 billion ($425.7 million).

The braised food producer and retailer, scheduled to make its trading debut on Nov 11, will sell 424 million shares at an indicative range between HK$5.8 and HK$7.8 apiece.

Founded in 2002 in Wuhan, Hubei province, Zhouheiya beefed up its business footprint in 38 cities across 12 mainland provinces with 715 self-operated retail stores.

Executive Director Hao Lixiao told a news conference in Hong Kong on Monday that the company is always looking to expand into the Hong Kong and Macao markets. However, he didn't reveal a detailed timeline, adding that the firm still deals with the local licenses, not to mention that product research and the buildup of sales networks also takes time.

Zhouheiya's Hong Kong IPO highlighted an industrywide trend of mainland duck-food manufacturers floating public shares. Competitors like Jiangxi Huangshanghuang Group listed in Shenzhen back in 2012, while Hunan Juewei has been stuck for more than two years in the Chinese mainland's clogged pipeline of IPOs.

"Such a trend indicates that growth of mainland duck-food chains has somewhat run into a bottleneck which pushes them to raise capital via public listings as a growth booster," said Zhu Danpeng, a researcher at the China Brand Research Institute.

With rival Hunan Juewei being trapped in a big logjam of mainland IPO filings, Zhouheiya's decision to join in a cluster of mainland food companies floating in Hong Kong appears to be a time-saving move.

The IPO logjam that has long beset mainland catering companies accessing mainland capital markets was spotlighted when high- and mid-end restaurant chain Xiao Nan Guo Restaurants Holdings, and hotpot chain Xiabu Xiabu turned to Hong Kong to list in 2014.

Choosing Hong Kong as a listing destination helps companies jump the long IPO queue in the Chinese mainland, but low valuation in the Asia's financial hub remains a sure thing. In particular, Hong Kong investors still view food stocks listed there as generally expensive options, which may explain why some believe shares of Zhouheiya are priced a bit too high, said Hannah Li, a Hong Kong-based strategist with UOB Kay Hian.

sophia@chinadailyhk.com