As Banu, the self-styled premium hot pot chain, updates its Hong Kong IPO prospectus, a financial paradox unfolds. The company reports a striking turnaround in profitability, with its adjusted net profit for the first nine months of 2025 soaring to 235 million yuan. Yet, this improved bottom line emerges alongside persistent questions about its treatment of workers, aggressive pre-IPO payouts, and a brand still reeling from past consumer controversies. For global investors, the listing presents a classic Chinese market dilemma: assessing the sustainability of impressive margins achieved through stringent cost control against a backdrop of intensifying regulatory scrutiny and investor skepticism.
Executive Summary: The Critical Takeways on Banu’s IPO Bid
- Financial Rebound: Banu shows a dramatic profit recovery in 2025, with adjusted net profit hitting a record 235 million yuan for the first nine months, up from 168 million yuan for all of 2024, primarily driven by aggressive cost compression.
- Labor Model Under Fire: The company’s profitability is partly fueled by a ballooning part-time workforce and admitted shortfalls in social security and housing fund contributions for employees, raising significant compliance risks.
- Controversial Pre-IPO Dividend: Just months before its listing attempt, Banu distributed a 70 million yuan dividend, with 75.26% shareholder and founder Du Zhongbing (杜中兵) and his family receiving over 58 million yuan, drawing sharp regulatory inquiry.
- Brand Erosion Persists: Despite a slight recovery in key metrics, the chain still battles the aftermath of high-profile scandals, including “overpriced potatoes” and founder statements alienating mass-market consumers, pressuring its average customer spend.
- Regulatory Hurdles: The China Securities Regulatory Commission (CSRC) has issued pointed questions on labor compliance and the rationale for the dividend, indicating a challenging path to final listing approval.
Decoding the Financial Turnaround: Profit Surge Amidst Revenue Constraints
The updated prospectus reveals a company aggressively engineering profitability. For the first nine months of 2025, Banu’s revenue reached 2.077 billion yuan, shy of the 2.307 billion yuan recorded for the full year 2024. Remarkably, its adjusted net profit for those nine months was 2.35 billion yuan, substantially exceeding the 1.68 billion yuan earned in the prior full year. This signals a profound shift in operational efficiency, at least on paper.
The Mechanics of Margin Expansion
Banu’s store-level operating profit margin tells the story of this engineered growth. It climbed from 15.2% in 2022 to 21.5% in 2024, and further to 24.3% in the first three quarters of 2025. The company attributes this to “standardization and refined operations.” A closer look at the cost structure reveals two primary levers: a significant reduction in the cost of materials and a strategic, yet contentious, overhaul of its labor model. This operational tightening occurs directly under the watchful eye of the CSRC, a key source of the current regulatory scrutiny and investor skepticism.
The Cost-Control Conundrum: Labor, Ingredients, and Social Responsibility
Banu’s path to higher profitability is paved with difficult trade-offs, particularly concerning its workforce and supply chain. While common in the pursuit of efficiency, the methods employed here have drawn specific and serious questions from market watchdogs.
The Part-Time Workforce Boom and Social Security Shortfalls
Between the end of 2023 and September 2025, Banu’s store count grew 46%, from 111 to 162. However, its full-time employee base increased only 23%, from 1,604 to 1,974. In stark contrast, its part-time workforce exploded by 198%, soaring from 1,111 to 3,308 individuals. This structural shift is a clear cost-saving mechanism, as part-time workers typically do not receive the same level of benefits as full-time staff.
More alarmingly, Banu admits in its filing to consistent underpayments of mandatory social security and housing provident funds for its employees. The owed amounts were approximately 1.6 million yuan in 2022, 1.2 million yuan in 2023, 700,000 yuan in 2024, and 500,000 yuan in the first nine months of 2025. The company’s explanation—citing a large, high-turnover workforce and some employees’ reluctance to pay their share—does little to alleviate concerns about systemic compliance. This issue was a central point in the CSRC’s “nine consecutive questions” to the company in August 2025, directly probing the legality of its labor practices.
Compressing Ingredient Costs
Simultaneously, Banu has successfully reduced its cost of materials as a percentage of revenue. This ratio dropped from 33.8% in 2022 to 32.1% in 2024, and hit a low of 30.6% in the first nine months of 2025. While improved supply chain management and purchasing scale can explain part of this, it inevitably invites scrutiny over whether quality—the very pillar of Banu’s “productism” marketing—is being maintained. Past controversies suggest this is a fragile balance.
The 70 Million Yuan Dividend: A Signal of Confidence or a Red Flag?
In January 2025, with its IPO application in preparation, Banu’s board approved a cash dividend distribution of 70 million yuan. Founder Du Zhongbing (杜中兵) and his family, holding a 75.26% stake, received approximately 58 million yuan from this payout.
Regulatory Questioning of Corporate Governance
This move triggered immediate and pointed inquiries from the CSRC. Regulators demanded Banu explain the “rationality of implementing the dividend in light of the company’s liabilities” and the “necessity of financing through this listing given the dividend distribution.” The core concern is clear: if the company has sufficient cash to reward its controlling shareholders handsomely, why does it urgently need to raise capital from public markets? This action amplifies the existing regulatory scrutiny and investor skepticism surrounding the offering, raising fundamental questions about capital allocation priorities and minority shareholder interests post-listing.
Brand in the Balance: From “Productism” to Public Relations Pitfalls
Banu built its reputation on a premium proposition centered on high-quality ingredients like its signature tripe and mushroom broth. However, a series of incidents has severely tested consumer trust and diluted its brand equity.
A History of High-Profile Controversies
The challenges are well-documented. In 2023, the “overpriced potato” scandal erupted when customers balked at paying 18 yuan for a plate with just five slices. Founder Du Zhongbing’s (杜中兵) defense, emphasizing the potato’s supposed high selenium content, backfired when media tests showed the selenium levels were far lower than claimed, leading to a product recall.
Later that year, a food blogger exposed that lamb rolls at Banu’s sub-brand “Chaodao” (超岛) contained duck meat, a serious food integrity issue. While Banu attempted to distance itself by stating Chaodao was independently managed, the incident exposed weaknesses in group-wide quality oversight. Furthermore, Du’s own comments in a 2024 live stream—suggesting that people with a monthly salary of 5,000 yuan shouldn’t eat at Banu and that hot pot “is not for the底层人民 (common people)”—directly contradicted the brand’s folksy “boat tracker spirit” origin story, alienating a broad segment of consumers.
The Operational Impact: Mixed Recovery Signals
The financial data reflects this brand strain. While store traffic and average daily sales showed a recovery in 2025, the key metric of average customer spend continues to decline. The overall average check per customer fell from 150 yuan in 2023 to 142 yuan in 2024, and further down to 138 yuan in the first nine months of 2025. Although this still places Banu in a premium price bracket—well above the industry average of 75 yuan and even surpassing rival Haidilao’s 97.5 yuan—the downward trend indicates pricing pressure and potential brand dilution. Sustaining premium pricing requires impeccable consumer perception, an area where Banu has repeatedly faltered, feeding the cycle of regulatory scrutiny and investor skepticism.
The Road Ahead: Navigating IPO Approval and Long-Term Sustainability
Banu’s listing journey encapsulates the evolving priorities in China’s capital markets, where financial performance is increasingly weighed against environmental, social, and governance (ESG) factors and long-term corporate health.
The Key Hurdles to Clear
For the Hong Kong Stock Exchange and international investors, several unresolved issues loom large:
- Labor Compliance: Providing a satisfactory, legally sound resolution to the social security arrears and demonstrating a sustainable, compliant employment model for its vast part-time workforce.
- Governance Justification: Convincingly answering the CSRC’s questions on the pre-IPO dividend to prove the listing’s capital-raising is for genuine growth, not shareholder enrichment.
- Brand Rehabilitation: Articulating a credible strategy to rebuild consumer trust and stabilize its average customer spend, proving that its “productism” is more than a marketing slogan.
The company’s ability to address these concerns transparently will be a critical test of its management’s commitment to sustainable growth beyond short-term profitability. The lingering regulatory scrutiny and investor skepticism serve as a market reminder that aggressive cost-cutting and financial engineering alone are insufficient foundations for a successful public company.
Investment Verdict: Weighing Profitability Against Principle
Banu’s updated prospectus paints a picture of a company at a crossroads. On one hand, it demonstrates an impressive operational grip, successfully boosting margins in a competitive sector. The recovery in customer traffic and sales in 2025 suggests resilient demand for its premium offering. For investors purely focused on near-term earnings growth and margin expansion, the numbers may appear compelling.
On the other hand, the sources of this profitability are fraught with risk. The reliance on a ballooning part-time workforce with admitted compliance gaps presents a tangible liability. A major dividend payout right before asking the public for capital raises corporate governance concerns. A brand still stained by quality scandals and alienating rhetoric poses a threat to long-term pricing power. These are not peripheral issues; they are central to the company’s operational and reputational viability.
For institutional investors evaluating this IPO, the decision hinges on risk appetite. The potential for growth in China’s dining sector is undeniable, and Banu has carved out a valuable premium niche. However, the investment case is heavily clouded by ethical, compliance, and governance overhangs. A prudent approach requires demanding clear, actionable plans from management on resolving labor issues, justifying its capital needs, and repairing its consumer brand. Until these plans are convincingly presented and executed, the shadow of regulatory scrutiny and investor skepticism will likely cap the company’s valuation and challenge its post-listing performance. The market’s verdict on Banu will be a telling indicator of how much weight global capital now assigns to sustainable operational practices alongside raw financial metrics.