Helens’ outlook dims as ‘revenge clubbing’ fades

The bar operator posted a double dip in revenue and profit in the first half of the year as its outlook dims with China’s slowing economy

Key Takeaways:

• Helens said it expects to report its net profit fell by up to 57.5% in the first half of this year
• The Hong Kong-listed bar operator recently made a second listing in Singapore, hoping to raise its profile as it tries to expand globally

By Lau Chi Hang

It was the toast of the town a year and a half ago, as Covid-weary patrons flooded into its pubs to celebrate the end of China’s tough pandemic restrictions at the end of 2022.

But fast forward to the present, when pub operator Helens International Holdings Co. Ltd. (9869.HK, HLS.SG), which just listed in Singapore last month, is feeling a distinct post-Covid hangover. Its growing headaches were apparent in a company profit alert issued earlier this month, where it forecast a year-on-year revenue decline of 36% to 39.4% to between 430 million yuan ($60 million) and 450 million yuan for the first half of 2024. It added its profit fell 53% to 57.5% over the period to between 67 million yuan and 74 million yuan. 

The decline was partly due to a surge in its bar revenue in the year-ago period, as fun-lovers spent lavishly with the end of China’s pandemic restrictions. But the post-pandemic high is mostly a memory now, as things have returned to normal. Adding to its woes are an uncertain economic outlook in China and the impact that’s having on consumer habits, said Helens. Last but not least, the company’s latest profits were also undermined by 12.2 million yuan in fees related to its new Singapore listing. 

Shrinking market cap

Helen’s shares fell as much as 4% the day after the profit warning. Its shares once traded as high as HK$25.75 after its listing in 2021, giving it a frothy market capitalization of HK$32.6 billion ($4.2 billion). But the shares have lost more than 90% of their value since then, wiping out HK$30 billion in market value and leaving investors feeling hung over.

The company’s sharp stock decline owes partly to timing, since the post-pandemic high and subsequent low were hardly unique to the company. But its own mistakes are also to blame.

Former military man Xu Bingzhong quickly rose to prominence with his low-price strategy featuring bottles of beer selling for just 10 yuan apiece when he opened his first bar in Beijing in 2009. As his ambitions grew in sync with his business, Xu planned to tap the capital market to fund his expansion. More than half of Helens bars nationwide were initially franchised. But Xu soon changed most of the outlets to directly operated bars, reflecting a preference by investors at that time, and boldly declared a target of operating 2,200 bars by 2023.

Helens was initially on track for such a rapid expansion, growing from 351 bars in 2020 to 782 at the end of 2021. But then the pandemic worsened, forcing many bars to close and sapping the festive spirit from people who liked to frequent such establishments. As that happened, many new Helens bars had to close not long after opening, with the company posting a whopping loss of 1.6 billion yuan in 2022.

After learning a hard lesson from the pandemic, Xu decided he had no choice but to bring back the franchising model to save costs while resuming his expansion. The company launched its “HiBeer Partnership” program in 2023 and had signed on 383 bars by the end of March this year, including 188 that were already open for business.

Meantime, the company also talked up global expansion as a diversification move against a weakening China market. Many believe the company’s second listing in Singapore was aimed at broadening its shareholder base and providing additional financing channels for future expansion, while also boosting its global visibility. As it looked to go global, Helens opened bars in Singapore and Japan over the past year and said it still aims to enter other markets.

Competing with local players

While globalization sounds good, it won’t come soon enough to relieve Helens’ growing headaches in its sluggish home China market. As the country’s economy slows and consumers cut back their spending, 460,000 restaurants closed nationwide in this year’s first quarter alone, more than twice as many as the same period last year. The pain has popped up in a growing number of profit alerts from listed Chinese restaurant operators such as Jiumaojiu (9922.HK) and Xiabuxiabu (0520.HK).

Within the sector, bar operators are taking one of the biggest hits. After all, alcohol is not a daily necessity for most people. And anyone on a budget can simply drink less, not drink at all, or buy their alcohol in cheaper places like supermarkets or convenience stores rather than go to pricey bars with huge markups.

At the same time, Helens has yet to profit much from its reintroduced franchise model, with 91.3% of its revenue still coming from directly operated bars last year. Some time may be needed for that part of the business to grow, since it was only reintroduced last year. Still, signing on new franchisees could be problematic due to the worsening economic environment that may cause investors to become more conservative. Accordingly, the franchising business may not take off anytime soon.

Moreover, the company’s “HiBeer Partnership” program only requires franchisees to share a portion of their gross profits with Helens if they reach a certain level. Otherwise, the partners get to retain all of their own profits. But the current environment of weak consumption will make it more difficult for franchisees to raise their gross profit to levels that will benefit Helens in the short term.

Overseas expansion easier said than done

Overseas expansion is also easy to say, but not necessarily so easy to do. Most developed countries already have mature pub cultures that include high costs and also certain expectations from local consumers. That means Helens could have difficulty entering simply through a low-price strategy. It’s also difficult for an establishment like a bar to localize while keeping its own characteristics and strengths that set it apart. Moreover, competing with local established players already puts outsiders at a disadvantage due to lack of knowledge about the local market and weaker brand recognition.

With all those challenges confronting it, it’s not too surprising that Helens has only managed to add two new bars overseas in the past year.

Helens’ current price-to-earnings (P/E) ratio stands at a relatively low 12 times, well behind the 22 for London-listed Greene King(GNK.L), a subsidiary of CK Asset Holdings, and an even higher 49 for HKEx GEM-listed Bar Pacific (8432.HK). That shows that Helens isn’t very highly valued by investors right now – a reality that may be deserved due to the company’s plunging profits and uncertainties it faces in the second half of the year.

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