Lan Kwai Fong in Central Hong Kong has always been the landmark of Hong Kong nightclub culture. From here, a publicly listed company is about to emerge: Hong Kong Entertainment Group Holdings Company Ltd.

Hong Kong Entertainment has recently submitted a prospectus for listing on the mainboard of the Hong Kong Stock Exchange. The sole sponsor of the IPO is Ample Capital Limited. According to the prospectus, Hong Kong Entertainment has three clubs, Levels, Bungalow and Club Legend, as well as two tasting bars, Solas and I Know John, located in Hong Kong’s prime locations such as Lan Kwai Fong in Central and Mongkok Center. The three clubs and two bars have different orientations. They are aimed at college students, young entrepreneurs, professionals and foreigners with different consumption abilities, while the bars cater mainly to sports enthusiasts, white-collar workers and fans of whiskeys, cocktails and white wine.

According to Frost and Sullivan, there are 39 clubs and 550 bars in Hong Kong. The competition in night entertainment market is fierce. According to 2018 data, Hong Kong Entertainment occupies about 16.6% of the club market. According to the prospectus, the company’s operating income in fiscal year 2016-2018 was HK$120 million, HK$110 million and HK$136 million respectively, with net profits of HK$21.7 million, HK$16.4 million and HK$27.7 million, with net margins of 18.1%, 15% and 20.4%, respectively. Income mainly comes from sales of beverages, admission fees and sponsorship income, while beverage sales account for more than 90% of the total revenue. Levels and Bungalow have contributed the most important beverage sales.

Hong Kong’s enduring nightclub culture is one of the sources of confidence in maintaining stable popularity and income. However, Hong Kong’s entertainment clubs and bars are mainly located in the central business district of Hong Kong, and the high rental cost of the property can not be underestimated. In addition, the company mainly uses MHD as a supplier. Any change in the product supply or partnership of the largest supplier will affect the operations of clubs and bars of the company. This shows that the risk management of the supply chain needs to be studied.

We shall see how Hong Kong Entertainment will fare in the future once it’s listed.

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