Chinese hotpot chain Haidilao's IPO valuation is 'a bit high'

  • While Haidilao's stock price may be "a bit high," Jackson Wong, associate director at Huarong International Securities said he could see why it was a "sexy stock for a lot of investors."
  • Analysts also expressed concerns about the Chinese hotpot chain's ability to maintain its long-term competitive edge as it seeks to expand.

Chinese hotpot chain Haidilao made its debut on the Hong Kong stock exchange on Wednesday, but some analysts are already questioning the company's valuation and its ability to maintain its competitive edge.

"I personally didn't subscribe, I think the valuation is a bit high to my appetite," Jackson Wong, associate director at Huarong International Securities, told CNBC on Wednesday.

He did, however, say it was a "sexy stock for a lot of investors" and the company has been expanding rapidly in China for the past few years.

At a valuation of about 79 times its historical earnings, Haidilao is "certainly one of the most expensive restaurant stocks in Hong Kong," Ronald Wan, group non-executive chairman at Partners Financial Group, told CNBC on Wednesday.

Wan also questioned whether Haidilao would be able to sustain its unique qualities as it expands overseas, referring to the restaurant's additional services such as free manicures and snacks for customers waiting in line.

"Basically, I think the business model and the uniqueness of the company, whether it can be (sustained) well, will be something which investors should look at seriously," he said.

New entrants that enter the same market segment "can pose a really great challenge to Haidilao," Wan said.

"The entry barrier is not really high, you know, someone can get in easily," he added, and Haidilao's competitive edge could face a "great challenge" if that happens.

"At this point in time, it's not clear to me outside of China how many people (are) actually, you know, willing to try the spicy hotpot," Hao Hong, a managing director and head of research at Bank of Communications International, said on CNBC's "Squawk Box."

Furthermore, Hong added, the demand for hotpot tends to be seasonal in nature, with greater consumption usually seen during winter.

"It's not entirely clear to me how they can replicate the Chinese model overseas," he said.

Nevertheless, Hong said "consumer names have been performing quite well" for 2018, adding that Haidilao is "a good company" with a business model that is "very easy to understand."

Haidilao's stock closed nearly flat at 17.82 Hong Kong dollars per share, although the stock jumped as much as 10 percent during its first trading day. The IPO was priced at 17.80 Hong Kong dollars per share.

Hong Kong's IPO landscape in 2018

2018 has been a busy year for public listings in Hong Kong, with KPMG expecting the city to top the global market for IPOs this year.

"I think so far we've seen very strong market reaction towards all these IPO names," said Hong, with the consumer names "doing relatively better."

Hong added that these IPOs have been "treading on the water" against the backdrop of falling share prices in Hong Kong.

Other companies that were listed in Hong Kong this year include Chinese tech heavyweights Xiaomi, Ping An Good Doctor, Meituan Dianping and mobile infrastructure behemoth China Tower. As of Sept. 26, stocks of these companies were trading at levels below or close to their IPO price after losing their initial luster.