Tsui Wah Restaurant - Hong Kong's only publicly listed cha chaan teng, or locally-styled cafe - has revealed that it's in talks that could lead to the sale of about 62.28 percent of its outstanding shares held by several majority shareholders. If the deal goes through, the buyer or buyers would have to comply with the law to offer the same terms to acquire all the remaining shares from minority shareholders.

Tsui Wah's shares were last traded at HK$1.37 apiece before trading was suspended on Tuesday, valuing the company at slightly below HK$2 billion. When trading resumed on Wednesday, the company's shares shot up 23 percent to HK$1.68 each before slipping back to HK$1.57 - still up 14.6 percent from the pre-suspension closing price. Only about 47 million shares valued at about HK$75 million changed hands.

The subdued response to Tsui Wah's announcement suggests that investors have remained skeptical about the premium that the prospective buyer would be willing to pay for a company that's finding itself in a bind. The once high-flying restaurant chain had earlier posted a 54 percent decline in profit to HK$72 million for the fiscal year ended March 31, 2016. The poor showing was attributed to a loss of HK$9 million in the second half of the fiscal year.

In contrast, Tsui Wah's competitors, including Fairwood, which is at the lower end of the market segment, have reported strong earnings growth for the comparable period, indicating that Tsui Wah's problem is not cyclical in nature.

The company's business strategy, which had worked so well in the past, is falling apart amid growing competition from various fast-food chains at the lower end of the market, as well as the proliferation of niche restaurants in the newly gentrified neighborhoods that are offering better food and services at slightly higher prices.

Tsui Wah's controlling shareholders, apparently, have elected to opt out rather than initiating changes to meet the new challenges. By so doing, they may have strangled the business model that started a revolution in the cha chaan teng business.

Patrons may complain about the uneven food quality at different outlets, the high prices or the impersonal services. But, they have come to take for granted the efficiency that has been the hallmark of Tsui Wah.

(China Daily 07/29/2016 page5)