A Meituan Dianping food delivery. Photo: Baidu
A Meituan Dianping food delivery. Photo: Baidu

China’s largest food-delivery platform Meituan Dianping and the country’s largest restaurant chain Haidilao International are set to compete for investors with gigantic initial public offerings (IPOs).

Both companies are examples of aggressive expansion riding on the China boom, and they have their own fans.

Meituan Dianping’s proposed IPO may be this year’s largest. With a target of US$4 billion, the food delivery and online service provider could top Xiaomi Inc in market capitalization and become the largest IPO in five years.

This glowing scenario was made possible by Meituan and its rivals engaging in a costly battle for market share, not only in food delivery, but also ride-hailing, finance and travel services. Lately, however, this has come at a cost: in 2017, Meituan lost 19 billion yuan (US$2.78 billion), compared to a net loss of 5.8 billion yuan in 2016.

At a forecast price-earning ratio of 184.5 times for 2019, Meituan still has the highest valuation among new economy stocks, many of which remain vulnerable to market correction.

For example, many of Tencent’s spin-offs such as China Literature (51% owned by Tencent), Zhong An (15%) and Yixin (20.9%) all dipped below the offer price.

Meituan is 20% owned by Tencent, which reportedly upped its investment by a further US$400 million to maintain its stake.

Unlike Meituan, Sichuan-based Haidilao is a single-business restaurant chain which, after adding 50 outlets this year alone, now boasts over 320 restaurants in China, Hong Kong, Taiwan, Singapore, Tokyo, Seoul and Los Angeles. Haidilao literally means “scooping the sea” in Chinese, which reflects how diners in the restaurants scoop their food from hotpots on the table.

Haidilao is known for its excellent service, not something that is common among Chinese restaurant companies. The brand’s popularity is now so high, that whenever a new outlet opens, customers queue for hours to be first in the door.

It is also a profitable business, having reported a 1.19 billion yuan net profit in 2017, representing compound annual growth in profits of 70% in the last three years.

The company’s goals are far from modest. Haidilao is asking for a valuation of between US$9 billion and US$12 billion, easily making it the largest Chinese restaurant in terms of market capitalization. It plans to raise about US$1 billion in its Hong Kong listing next month.