At a market cap of HK$77 billion, Haidilao is more than just a hotpot. It’s an experience – from phone charging and snacks while you wait, to noodle dances, robot servers, manicure services and even mask-changing performance.
I’d say very few restaurants have such entertainment.
While the Hang Seng Index is up ~48% over the past year, Haidilao shares remain flat, stuck at ~HK$14 – still 83% below their 2021 peak.
At current shares, it’s trading at 6.5% dividend yield. What’s driving its dividends?
Here’s what you need to know about China’s largest hotpot restaurant.
1. From sizzlings highs to a reality check
Haidilao was listed on the Hong Kong Exchange in 2018 at ~HK$17.80/share, capturing the market’s attention. China’s dining boom fueled a stunning rally.
At one point, shares surged to HK$85 – powered by rapid store expansion and a booming Chinese middle class hungry for experiential dining. In a way, Haidilao revolutionized the hotpot business.
By 2021, Haidilao had grown from 273 outlets to over 1,600 outlets. Then the COVID-19 pandemic hit. Haidilao’s rapid expansion backfired – costs shot up, many new stores were shut and profits dried up.
Lockdowns and consumer habit shifts crushed restaurant traffic. By late 2022, shares of Haidilao tumbled 64% from IPO to below HK$10, reaching its lowest.
2. Intense obsession with customers
The restaurant business is a tough business – low margins, high staff turnover and brutal competition. Yet at its heart, Haidilao obsesses with its customers.
It built its brand through word-of-mouth and social media virality. The focus is clear: an entertaining show, and a sophisticated supply chain management system.
Now, this is more than just the spicy soup. It’s also the over-the-top, caring customer service (even robot servers at some branches). This “service theatre” makes it stand out versus rivals like Xiabu Xiabu, who target value diners and solo hotpot eaters.
As a result, Haidlao has created a competitive advantage that other restaurant operators try to emulate.
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3. Haidilao’s return to steady growth
Despite the bumpy ride, Haidilao has delivered solid long-term growth.
Since its Hong Kong IPO, Haidilao’s revenues grew from CNY10.8 billion in 2018 to CNY42.8 billion in 2024 – That’s a ~41% CAGR. Impressive.
What’s more, its table-turnover – a key restaurant metric – recovered to ~4x/day in 2024, nearing its pre-COVID levels. In 2023, table turnover rate was 3.8x/day. And close to pre-pandemic levels of ~5x.
Table turnover rate shows how often tables are used each day. Higher table turnover means better store efficiency and faster sales.
Haidilao’s net profit margin hit 11% in 2024. This is fairly healthy for a restaurant chain. This comes amidst higher wages, food supply costs, and China’s cautious consumer spending.
The hotpot giant’s improvements so far have shown better cost control, leaner operations and a disciplined growth strategy.
4. Haidilao’s bags of dividends: From “growth” to income payer
Here’s where it gets interesting for the income investor. For years, Haidilao reinvested most of its profits to build new restaurants. Since 2023, that has changed.
Over the last two years, it has paid out nearly all profits as dividends. In FY2023, its dividend payout ratio jumped to 90%, and further rose to 97% in FY2024. At current prices, its dividend trades at 6-7% yield.
That’s a big shift from its earlier years, where it paid out just 30-40% of its net profits as dividends.
While the restaurant giant skipped dividends entirely during the pandemic, Haidilao’s recent generous dividends payout over the past two years reflects signs of confidence in an earnings recovery.
Of course, the big problem is a 97% payout ratio leaves little margin of safety. If net profits fall, dividends could be cut again – just like in 2021.
5. Global expansion is small, but promising
With China’s “involution” and softer domestic demand, Haidilao is looking abroad – Southeast Asia, the US and Europe. So far, its overseas segment, Super Hi International, brought in CNY778 million in revenue, just under 2% of the Group’s total revenues in 2024.
But this has nearly doubled from two years ago.
If Haidilao can successfully expand beyond China, these markets can offer huge growth and diversification.
Having said that…
Here’s what I’m concerned
I’ll be clear. There are reasons why Haidilao is still trading in the bargain bin.
China’s F&B market is highly competitive. Today, the world’s second largest economy has over 70,000 hotpot restaurants.
New entrants like BANU (which is planning a Hong Kong IPO) and established players like Xiabu Xiabu are constantly launching new locations and aggressive promotions.
Haidilao may be the king of hotpot, but a slip in market share could hurt its overall profits. What’s more, slowing consumption, rising food prices and wage inflation could squeeze margins.
Next, food safety in China is under constant scrutiny. Any major incident could damage Haidilao’s long-term brand reputation overnight.
My final thoughts
At current HK$14 per share, this is China’s largest hotpot restaurant business. Since the pandemic, its business is recovering.
One big driver of its scalable operations is Haidilao’s relentless obsession with its customers. Its financials are improving, driving a secured dividend payout over the last three years.
Haidilao presents a compelling investment story for dividend-seekers willing to stomach some volatility. Its unique market position, strong brand loyalty, and improving financial metrics make it an attractive option in the restaurant space.
Whether that recipe delivers a long-term reward depends on keeping restaurant traffic high and profits flowing – especially with such a high payout level.
As always, we should weigh both the upside and the risks and decide if this hotpot fits our own appetite.
