| Valuation method | Value, HK$ | Upside, % |
|---|---|---|
| Artificial intelligence (AI) | 29.30 | 41757 |
| Intrinsic value (DCF) | 0.27 | 286 |
| Graham-Dodd Method | n/a | |
| Graham Formula | n/a |
Longhui International Holdings Limited is a Hong Kong-based investment holding company operating in China's competitive hotpot restaurant sector. The company specializes in the hotpot dining experience through its Faigo and Xiao Faigo Hotpot brands, operating 24 restaurants across mainland China. As part of the consumer cyclical sector, Longhui caters to China's growing dining-out culture and the popularity of hotpot cuisine, which represents a significant segment of the country's food service industry. The company's business model focuses on owning and operating its restaurant locations directly, allowing for quality control and brand consistency. Operating in Hong Kong's dynamic market provides access to international capital while serving the massive Chinese consumer market. The hotpot segment has shown resilience despite economic cycles, though it faces intense competition and changing consumer preferences. Longhui's positioning targets mid-market consumers seeking authentic hotpot experiences in China's rapidly evolving food service landscape.
Longhui International presents a high-risk investment proposition with significant challenges. The company reported a net loss of HKD 14.4 million in FY 2023 despite HKD 82.3 million in revenue, indicating operational inefficiencies or intense competitive pressures. With a market capitalization of approximately HKD 13.3 million and negative earnings per share of HKD 0.14, the company appears significantly undervalued but reflects market concerns about its viability. Positive operating cash flow of HKD 9.4 million suggests some operational capability, but high total debt of HKD 32.4 million relative to cash reserves of HKD 2.9 million raises liquidity concerns. The negative beta of -0.052 indicates counter-cyclical behavior relative to the market, which may appeal to certain investors seeking diversification. However, the absence of dividends and ongoing losses make this suitable only for speculative investors comfortable with the high risks of China's competitive restaurant sector.
Longhui International operates in an intensely competitive segment of China's restaurant industry, where hotpot chains face fierce competition from both specialized operators and broader restaurant groups. The company's competitive positioning appears challenged, operating only 24 locations under its Faigo and Xiao Faigo brands, which limits economies of scale and brand recognition compared to market leaders. In China's hotpot market, scale is critical for negotiating supply chain advantages and marketing reach, areas where Longhui appears disadvantaged. The company's negative profitability in 2023 suggests it lacks either sufficient pricing power or operational efficiency to compete effectively against larger chains. While operating company-owned locations provides quality control, it also requires significant capital investment and limits expansion speed compared to franchise models employed by some competitors. The hotpot market itself faces challenges from changing consumer preferences, including health consciousness and delivery alternatives, though the experiential nature of hotpot dining provides some insulation from pure delivery competition. Longhui's small scale makes it vulnerable to regional economic downturns and localized competition, without the geographic diversification of larger chains.