Take Stock In China’s Restaurant Boom

Take Stock In China’s Restaurant Boom

Want to tap into the red-hot Chinese economy? Think “green” restaurants are the wave of the future? Then perhaps you should buy stock in oddly named Yaboo, Inc.—that’s Yaboo, not Yahoo—currently valued at $11.82 million on the U.S. market. It’s going for only $.25 a share.

Yaboo (trading symbol YBIN.OB) isn’t the first Chinese restaurant company to sell its stock on a U.S. exchange. Chinese fast food chicken QSR concept Country Style Cooking Restaurant Chain (CCSC) began selling shares last October. Their value soared 50 percent of the first day of trading, changing hands for $36.45 apiece at their peak. One year later, you can buy shares for $12.78 each.

But at least Country Style Cooking had 56 units, and plans for many more. Yaboo has just one unit—Qilin Bay restaurant. It does business in Taizhou City, which is located on coast of the East China Sea and has a population of 6,000,000.

Yaboo describes Qilin Bay this way in the eye-opening registration statement it filed with the Securities and Exchange Commission:

“Qilin Bay is a Chinese themed fresh foods restaurant. The restaurant features a variety of fresh seafood complemented by a variety of sauces, and high quality of healthy and frozen free vegetables, beef, pork, ribs, chicken entrees and noodles dishes. Qilin Bay also offers specialty appetizers, desserts and full liquor service.

“The Company’s strategy is to differentiate its restaurants by emphasizing consistently high-quality food and service, generous portions at moderate prices and a natural and wild atmosphere. Qilin Bay is a wild place to entertain and eat. Part adventure, part restaurant, and wholly entertaining for the whole family; Qilin Bay recreates a subtropics with water flowing beneath a little bridge, lush vegetation, and indigenous creatures.”

Ok, it sounds like a concept that could work, sort of like a Rainforest Café retooled for the Chinese market. So what do the numbers look like?

They're grim so far. Qilin Bay has struggled since opening in 2009. Total 2010 revenue: $267,426. Average monthly sales now stand at $14,000 and net monthly negative cash flow is $12,021. You can see more about this company’s condition at http://www.faqs.org/sec-filings/110502/YABOO-INC_S-1.A/#ixzz1afg61Gz5 [3].

We don’t know if we’ve ever read through a SEC filing quite like this one. The company’s financial picture right now is so grim you may be tempted to think its management is delusional. They might be, but we point out that they bought Qilin Bay for $146,455 a couple of years ago and now it has a U.S. market cap of nearly $12 million.

Yaboo has already delivered astronomical returns for its founders. Will it be able to do anything similar for you? The restaurant’s backers think their business is ready to turn the corner, and that their “green” approach will be a big moneymaker in the future. They plan to expand this concept throughout China.

Here’s the pitch, taken from SEC filings.

“We operate what is known in China as a ‘green foods’ restaurant, which comprises the operating activities of the Qilin Bay Restaurant. There are no ‘licensed’ green foods restaurants in China. Instead, as what is known in China as a ‘green foods’ restaurant, we focus on selling foods that meet ‘Green Food’ standards set by the China Ministry of Agriculture.

“Chinese green food standards are not as strictly defined or tested as USA’s organic food standards. In China, “green food” means that the food materials were naturally grow without utilizing pesticides or any chemicals, the food materials must have no harmful materials tested which may have no negative effects on human beings.

“Much of the food we serve was grown by farmers or in a nearby greenhouse located in the Taizhou City Hailing Modern Agriculture Demonstration Zone. Taizhou City Hailing Modern Agriculture Demonstration Zone is approved by China Ministry of Agriculture to grow vegetables according to China’s green food standards. We believe the food we serve that is grown in the Taizhou City Hailing Modern Agriculture Demonstration Zone meets Chinese ‘green food’ standards, although we do not perform any independent tests on these foods or on foods we buy at local markets that are not grown in the Hailing Modern Agriculture Demonstration Zone.

“Our restaurant comprises the operating activities of the Qilin Bay Restaurant. The restaurant is located in the center of ‘Taizhou City Hailing Modern Agricultural Demonstration Zone.’ The restaurant’s interior is built in accordance of Chinese-garden style. The restaurant includes a 3,500-square meter greenhouse, with various flowers and trees. Customer will enjoy their meals in this natural environment. The restaurant has 24-stylized dinning rooms, along with a 2,000-square meter hall. The hall has an entertainment stage surrounded by 300 seats. There is also a section built inside of the restaurant, for the purpose of displaying green food, which could also be used as VIP member club. The member club provides pre-cooked foods for members to take home.

“We operate only one restaurant, Qilin Bay Restaurant. We will continue to generate revenues solely from operations of this one restaurant, as described above.

So who is the competition?

“In Jiangsu Province and Greater Shanghai area, we believe we compete primarily with Inner Mongolia Little Sheep Catering Chain Co., Ltd. Inner Mongolia Little Sheep Catering Chain Co., Ltd. (Little Sheep) is one of the leading chain restaurants in the area as well as across the country. They operate two restaurants in our area. They currently have a seasoning plant, two meat industry plants, and one logistics subsidiary in the area. Little Sheep does not operate its restaurant as our Qilin Bay Restaurant does. Our restaurant provides customers with unique environment and live four season fresh vegetables directly from our in site greenhouse. There are no licensed ‘Green Food’ restaurants in Taizhou area. The ones that do promote green foods but do not operate restaurants, and they may be our suppliers: Taizhou Hualong Eco-Farm, Taizhou Sanchuan Eco-Farm, Shangri-la Ecological Farm.

“Little Sheep has the advantage of having the original green food concepts, which would make them one of our main competitors in the future. The three farms are not our biggest competitors, because they have smaller businesses, with various customers. Our biggest weakness is that the location of our restaurant is not in a busy area. Our advantage is that we are surrounded by good superior environment and our already built entertainment and show stage, are also a plus.”

Be sure to conduct serious due diligence if you put some money into this stock. However, we have to admit that as the SEC document describes operating conditions in China, it’s got to be easier to participate in China’s restaurant market as an investor than as a hands-on owner.

Yaboo went public on the OTC Bulletin Board on Oct.11 at $.25 a share. That means you can buy 100 shares for less than it might cost you for lunch at P.F. Chang’s. The penny stocks that trade on the OTC Bulletin Board are inherently risky, and this one seems to fit that mold. But if you want to take a flyer on green restaurants in China, here’s your chance.