Chinese Fast Food IPO, A Fast Recipe For Growth

It has been a while since I was excited about an IPO. Remember Google, or to a lesser extent Lululemon? I am now excited about a new pure play in the Chinese fast food industry, Country Style Cooking Restaurant Chain (NYSE: CCSC).

Its true that this stock is not a household name, or owns a famed brand as Google, but if you are one of those people betting on China’s growth story, and the Chinese consumer spending growth, this stock is your fast recipe to capitalize on that - potentially - huge growth opportunity.

According to the company’s F-1 Form prospectus filing, which can be found via EDGAR Online, CCSC states that it is in the fast service restaurant, focussing on the Chinese market. It offers its customers quality Chinese food at affordable prices. The restaurant chain grew from 9 outlets in January 2008 to - a staggering- 101 restaurants as of June 30, 2010, including 56 restaurants in Chongqing municipality and 31 restaurants in Sichuan province. The company is the largest quick service restaurant chain in Chongqing municipality in terms of the number of restaurants as of March this year, and total sales in 2009, according to Euromonitor International (and independent market research firm). CCSC has a strong presence in Sichuan province as well.

If you are not a geography geek, it is important to realize that Chongqine and Sichuan provinces cover a region of 110 million people in Southwest China that is home to Sichuan cuisine, one of the best-known Chinese regional cuisines. This is a large market that provides CCSC with a solid platform to register robust growth in the years to come. But CCSC is not confined by its current presence in Western China, and is planning on further expanding its geographic coverage and increase the chain to over 130 restaurants in Chine by the end of 2010.

CCSC, in its filing, indicates that the average traffic per restaurant per day of approximately 1,600 customers and the average table turnover per day is at 16 times for the six months ended June 30, 2010.

Let’s talk numbers now. CCSC revenues increased by 113.6% from RMB231.5 million in 2008 to RMB494.5 million ($72.9 million) in 2009, and by 53.7% from RMB212.3 million for the six months ended June 30, 2009 to RMB326.4 ($48.1 million) for the six months ended June 30, 2010. CCSC added 34 and 38 new restaurants in 2008 and 2009, respectively, which contributed revenues of RMB152.0 million and RMB124.5 million ($18.4 million) in 2008 and 2009, respectively. CCSC further added 20 new restaurants during the first half of 2010, which contributed revenues of RMB23.6 million ($3.5 million) for the six months ended June 30, 2010. CCSC net income increased by 69.4% from RMB26.6 million in 2008 to RMB45.1 million ($6.6 million) in 2009 and by 36.8% from RMB20.3 million for the six months ended June 30, 2009 to RMB27.7 million ($4.1 million) for the six months ended June 30, 2010.

Last Tuesday, CCSC raised $82.5 million by issuing 5 million American Depository Shares (ADS) at $16.50 apiece. By the end of the first trading day, the demand for the shares was so high that CCSC shares soared 45% to mid-high twenties. As I am writing this, the value of the stock is flirting with the $30 level.

In my opinion, this stock is story is very interesting for a number of reasons:

1. Pure play in the fast food industry that fares well during rough times, and does very well during growth times 
2. Focus on the Chinese consumer, who is moving into urban areas, getting better jobs, and earning more money. This consumer has been getting more busy that he/she started eating out more at fast food outlets. As China’s economy continues to growth, the number, quality, and affordability of the Chinese consumer will trend upward. 
3. The company is growing in number of outlets, and has a great growth prospect in the market. 
4. The company is benefiting from the backing of two major financiers, namely, Sequoia Capital and SIG China 

Granted, investing in this company’s shares (or ADS) does qualify as a speculative play. After all, this is a very young company, with no long term successful track record. Achieving their growth plans could stretch them too thin, while they need to answer some serious logestics and supply chain management questions. However, if you are a long term investor, who subscribes to the notion that food business has a tremendous growth opportunity in China, then you should start doing your homework on CCSC.

Disclosure: I am long on CCSC