Yue Jian Xiao Mian (02408.HK) plunges 28% below issue price on debut, high valuation fails to mask single-store profitability and expansion concerns

ZC Asia has learnt that on 5 December, Yue Jian Xiao Mian (02408.HK) listed on the Hong Kong Stock Exchange at an issue price of HK$7.04, plunging 28.98% to HK$5.00 upon opening. At the time of writing, its share price stood at HK$5.00, down 28.98% from the issue price.

Despite the company's status as the ‘first listed Chinese noodle restaurant chain’ and backing from cornerstone investors including Hillhouse Capital and Haidilao, these factors failed to bolster market confidence.

(Image source: Snowball)

This IPO garnered significant market attention for Yuejian Xiaomian. Public records indicate its Hong Kong public offering was oversubscribed by approximately 425.97 times. The international placement also saw 4.99 times oversubscription. The company successfully secured five cornerstone investors, including Hillhouse Capital and Haidilao (via Haidilao Singapore), collectively subscribing to US$22 million worth of shares.

However, this pre-listing fervour fuelled by capital failed to prevent a poor debut on the secondary market. During yesterday's dark pool trading session, Yujian Xiaomian's share price had already fallen by over 14%, revealing the market's premature scepticism.

Financial Imbalance

The market's cool reception is not without reason. Examining Yujian Xiaomian's financial records reveals a strained capital chain behind its rapid growth.

The prospectus reveals that by the first half of 2025, the company's debt-to-asset ratio stood at a staggering 87.83%, far exceeding the 40%-60% safety threshold typically regarded as prudent in the catering sector. Its current ratio was a mere 0.56, meaning for every £1 of current liabilities, only £0.56 of current assets were available for repayment. Such a financial structure appears particularly vulnerable in the catering industry, which demands robust cash flow.

A curious phenomenon is that despite such strained cash flow and high debt levels, Yue Jian Xiao Mian declared cash dividends of RMB 19.5 million in 2023 and RMB 14.7 million in March 2025, totalling over RMB 34 million.

This series of actions occurred during the critical IPO push period, interpreted by some market observers as ‘handing out red envelopes’ to pre-IPO shareholders.

The faltering single-store model

More fundamental than the high debt burden is the deteriorating profitability of its single stores – the very growth narrative underpinning its valuation.

Financial data reveals the company proactively adopted a price-cutting strategy to attract customers. Between 2022 and the first half of 2025, the average order value at its directly operated restaurants fell from ¥36.2 to ¥31.8, a decline exceeding 12%.

These price cuts failed to deliver the anticipated increase in customer traffic. In the first half of 2025, the company's same-store table turnover rate actually declined compared to the same period in 2024.

This directly led to a sustained decline in average daily sales per outlet. Both company-owned and franchised restaurants saw their average daily sales per outlet peak in 2023 before beginning to fall in 2024.

The Price of Speed

To present capital markets with ambitious growth projections, Yujian Xiaomian pursued rapid expansion. Its total store count surged from 133 outlets in early 2022 to 451 by 30 June 2025 (including Hong Kong locations). This equates to an average of one new store opening every three days over three and a half years.

One consequence of this breakneck pace is heightened risk of losing control over food safety and quality management. Reports indicate that in 2024, two of Yujian Xiaomian's Beijing outlets were publicly reprimanded by regulators for food safety violations. Complaints regarding foreign objects in its food products have also surfaced on platforms like Black Cat Complaints.

The franchise model, while accelerating expansion, may amplify these risks. In pursuit of profit, some franchisees have been accused of ‘privately lowering ingredient standards’ and similar issues.

Overvalued Expectations

The immediate cause of the share price falling below its issue price was market perception that its valuation was excessively high, severely disconnected from fundamentals and industry norms.

Analysts noted that even at the lower end of its HK$4 billion market capitalisation range, the static price-to-earnings (P/E) ratio based on 2024 net profit stood at a staggering 61 times.

By comparison, established industry leaders like Haidilao typically trade at P/E ratios of 15 to 18 times. This implies investors must believe Yujian Xiaomian's profit growth will consistently outpace industry giants over the coming years to justify the current valuation.

However, amid intensifying market competition and persistently declining per-store metrics, such high growth projections face severe challenges.

Disclaimer: The content herein is for reference only and does not constitute any form of investment advice. Should any information contained herein prove inaccurate, incomplete, or potentially misleading, please refer to the company's official announcements. Market risks exist; investment requires caution.