(Yicai Global) Aug. 11 -- The China Securities Regulatory Commission has reviewed the initial public offering plan of Zhongyin Babi Food, a breakfast company with nearly 3,000 stores that trades as Babi Mantou, paving the way for the Shanghai-based company to go public soon.

Babi Mantou, whose name comes from the soft steamed buns called ‘mantou,’ is preparing to raise CNY950 million (USD136.6 million) for capacity expansion and technological improvement in manufacturing and management, including upgrades of intelligent plants, production lines and storage systems, and the construction of a direct sales network and food research and development and testing centers, according to its prospectus.

The breakfast chain’s revenue and profit are growing steadily and its debt ratio gradually dropping. Its revenues were CNY720 million, CNY866 million, and CNY990 million from 2016 to 2018, while its net profits were CNY37.19 million, CNY113 million, and CNY143 million, respectively. The company's debt-to-asset ratio has been falling, from 30.27 percent in 2016, to 33.39 percent in 2017 and then 23.49 percent in the first half of 2018.

Babi Mantou had 16 directly-operated stores and 2,915 franchised stores as of the end of December. The company plans to further explore regional markets in Jiangsu, Zhejiang, Shanghai and Guangdong, focus on cultivating regional markets such as Beijing, and gradually extend its business to encompass the whole country.

The firm’s actual controllers are still Liu Huiping and his wife Ding Shimei. Liu is the chairman and general manager. The couple directly and indirectly hold 80.76 percent of Babi’s shares in a typical mom-and-pop shop arrangement.

Babi’s listing will pose multiple risks. The company's market expansion mainly rests on a franchise model, and most of its stores are franchised. It will further expand the market after listing, and will face greater challenges in system construction, operational and capital management and internal control of the franchise model if franchisees cannot strictly abide by its management requirements in their daily operations.

Convenience stores now sell breakfast, Chinese lunch, oden, barbecue, snacks, and even coffee, desserts, fruit and leisure categories, and shops such as Babi Mantou now hold few advantages, Zhu Danpeng, a Chinese food and beverage sector analyst told Yicai Global, adding the key is how to make breakthroughs in business model, scenario, and product innovation in future.

Editors: Chen Juan, Ben Armour