Tam Jai International To Delist From Hong Kong After Buyout

Restaurant network Tam Jai International is being bought out by its Japanese parent after battling weak growth and a troubled expansion plan

Key Takeaways:

• The offer of HK$1.58 per share is nearly 76% above the pre-announcement market price but is a hefty 52.5% below the IPO price
• The restaurant chain relied on the Hong Kong market for 94% of its revenue in the six months to the end of September

　The Hong Kong noodle shops will still be welcoming hungry diners, but restaurant chain Tam Jai International Co. Ltd. (2217.HK) is coming off the menu for stock market investors.

Just three years ago, the company listed on the Hong Kong Stock Exchange having embarked on an ambitious quest to spread its brand of rice noodle shops across Asia. But the plan faltered and a slowing economy took a bite out of revenues. Even a broad revival in Hong Kong share prices in recent months failed to make the firm a tastier proposition for investors.

Then on Tuesday, the Hong Kong restaurant network announced plans for its Japanese parent and biggest shareholder, Toridoll Holdings (3397.T), to buy out minority investors for up to HK$556 million ($76 million) and take the company off the stock market.

Toridoll, which already owns a 74.26% stake, offered HK$1.58 per share and ruled out any further sweetening of the price. The offer was pitched at a premium of around 75.56% over the pre-announcement closing price and around 43.25% over the net asset value per share as of 31 March 2024. 

If the deal goes through, Tam Jai International would officially file to relinquish its Hong Kong listing. The terms of the proposed buyout, with the juicy premium,  were appetizing enough to boost the firm's share price. 

Tam Jai International's stock surged just over 63% to HK$1.47 on the day its shares resumed trading, on turnover of 67 million shares. 

Sharp discount to the listing price

Putting a positive spin on the news, Toridoll said the stock market exit was intended to give investors an attractive opportunity to cash out of the company amid limited trading volumes. The move would also help the company better develop its business in the future, Toridoll said.

But the news surely left a sour taste for those who had flocked to the listing with high hopes a few years ago. Hong Kong's leading group of rice noodle shops went public in October 2021, raising around HK$1.4 billion in an offer that was 28 times over-subscribed. 

However, since then Hong Kong's restaurant industry has been hit by weak consumption and a stream of consumers crossing to the mainland in search of better deals. Tam Jai International was trading at only HK$0.9 per share before trading was suspended, 73% below the listing price of HK$3.33 and pushing its market cap down to HK$1.21 billion. Even the buyout price of HK$1.58 per share comes in at 52.5% below the original IPO price.

Tam Jai Yunnan Rice Noodles and Tam Jai Samgor Rice Noodles, established by two brothers, became household names for Hong Kong diners. The brothers parted ways but the brands came together again in 2017 when Toridoll, the parent of the Japanese fast food chain Marugame Udon, bought the two businesses for close to HK$2.2 billion. Optimistic about prospects for the combined brands, Toridoll vowed to take Tam Jai noodle dishes to global markets.

However, Tam Jai International's journey as a public company seems to have ground to a halt.

Deteriorating profit profile

Since the listing, revenue growth has been lackluster and profits have fallen. During the fiscal years from 2022 through 2024, it logged annual revenues of HK$2.28 billion, HK$2.59 billion and HK$2.75 billion. The company eked out a paltry 1.2% rise in revenues to HK$1.4 billion in the fiscal first half to the end of September 2024. 

Net profits have been on a steep decline, dropping from HK$203 million in fiscal 2022 to HK$117 million in 2024. In the first half of fiscal 2025 they tumbled nearly 56% to HK$36.07 million. 

In 2020 the company started to open stores outside of its Hong Kong base, expanding to mainland China, Japan, Singapore and Australia. By the end of September last year it had 23 mainland stores, 11 outlets in Japan and three in Singapore, but still derived around 94% of its revenue from Hong Kong.

Revenue from the Chinese mainland and overseas markets totaled only HK$85.4 million in the half-year results, a year-on-year fall of 7.2%. Income from the Hong Kong market rose 1.7% to HK$1.32 billion in the same period, but profits fell 14.7% to HK$224 million. Losses from the Chinese mainland and overseas outlets jumped nearly 69% to HK$9.01 million. The company was upfront about the difficulties, saying in the buyout statement that it was probably facing some of the biggest challenges in its history.

No quick turnaround

To mitigate the problems, Tam Jai International has been slowing the pace of its store openings in mainland China and concentrating its expansion on cities such as Guangzhou, Dongguan, Zhongshan and Zhuhai as it pivots away from costlier Shenzhen. Struggling stores are also being shuttered. However, a major momentum shift looks to be unlikely in the short term.

For Toridoll, the HK$556 million cost of taking the company off the stock market looks to be a bargain, as the noodle shop chain holds HK$1.3 billion in cash and is still turning a profit, despite the struggling share price. However, small shareholders may well feel they are getting a bad deal. The stock has never risen above the IPO price during its trading history and the company would be bought out for less than half the value of its cash holdings.

The Hong Kong market has long been afflicted by a lack of investor interest in small- and mid-cap catering stocks. Rather than allowing the company to languish with a low valuation, Toridoll may have decided that a buyout could open up more flexible financing options. The Japanese owner may be able to use its abundant funds to pursue new growth drivers for the Tam Jai business.