Restaurant chain Tsui Wah plans big expansion on the mainland

Restaurant chain operator Tsui Wah has unveiled ambitious expansion plans on the mainland as it attempts to tap rising affluence in Shanghai and Guangdong.

The company said it was on track to increase the number of outlets on the mainland by 24 to 28 by 2015 and aimed to build central kitchens in Shanghai and Guangdong to cater to increasing consumer demand.

The two new kitchens will be located within range of two-hour transportation and will be able to supply standardised food and beverage items to support demand for 60 restaurants.

The firm, co-founded by former cook and food delivery waiter Lee Yuen-hong, is aiming to raise HK$756.67 million through an initial public offering of 333.33 million shares, or 25 per cent of its share capital. The shares are priced between HK$1.89 and HK$2.27, equivalent to a price-earnings ratio of 16 and 19 times next year's earnings.

"The execution risk is probably the biggest concern in relation to Tsui Wah's bold expansion move on the mainland where consumers have a handful" of similar restaurants, said a fund manager who took part in an investor lunch.

Competitors such as Cafe de Coral and Fairwood have failed to penetrate the highly competitive mainland fast food market.

Despite an economic slowdown and fierce competition on the mainland, Tsui Wah will spend HK$331 million on network expansion and infrastructure. About 40 per cent of the net proceeds from the share sale will be spent on the mainland.