Haidilao’s profit warning has a silver lining for investors



What’s new: Haidilao International Holding Ltd. believes it returned to a loss in the first half of 2022 as the Chinese hotpot chain reduced its activities in a way that encouraged investors enough to drive its stock price higher.

In an exchange filing on Sunday, Hong Kong-listed Haidilao predicted it would report a net loss of between 225 million yuan ($33 million) and 297 million yuan for the six months until in June, compared with last year’s first half profit of 96.5. million yuan. It expects first-half revenue to fall at least 17% year-on-year to 16.7 billion yuan.

Haidilao’s share price jumped 10% to HK$17.66 ($2.25) on Monday before closing up 8% at HK$17.3. On Tuesday, it traded down 3.58% to HK$16.68.

The company said the loss resulted from the implementation of its risk mitigation plan and its decision to continue paying salaries despite pandemic-induced restaurant closures from March to May.

What is the background: In November, Haidilao began implementing a risk mitigation plan to limit its losses from an aggressive store expansion strategy. Under the plan, the company has closed some 300 underperforming restaurants since late 2021.

Haidilao said it saw signs of recovery in June, when operations at its restaurants improved thanks to a series of measures, including cost controls and decisions to tap credit facility and equity financing to maintain healthy cash flow.

The changes paved the way for a better second half of this year, said Liu Junle, chief investment officer of an asset management firm. Liu predicted that Haidilao would likely see an increase in operating profit for the period as the company explores online business and launches more products.

Contact reporter Ding Yi (yiding@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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