PANDA EXPRESS GOING PUBLIC

- Panda Express, founded in 1983 in Glendale, California, by Andrew Cherng and Peggy
Cherng. This is an American fast-food chain specializing in American Chinese cuisine,
with over 2,400 locations, making it the largest Asian-segment restaurant chain in the U.S.
Founded in California.
- The chain is headquartered in Rosemead, California, and is related to the more upscale
Panda Inn brand Panda Express aims to "deliver exceptional Asian dining experiences by
building an organization where people are inspired to better their lives", focusing on
blending Chinese regional cuisine with bold American flavors.
- It has expanded beyond traditional shopping mall food courts to include stand-alone
restaurants and locations in universities, airports, and other venues. The menu features
popular dishes like orange chicken, Beijing beef, and Kung Pao chicken, with premium
options such as honey walnut shrimp available for an additional cost.

I. Distinguish the network partner model – direct ownership model and in-house
logistics platform (Definition, typical strength and weakness)
THE NETWORK PARTNER MODEL
Definition
In the network partnership model, headquarters controlled only the distribution centers and
line hauls, while the network partners picked up the parcels from the sellers and delivered
the parcels to the end customers for the last mile.
Typical strengths
• Enabled wider service coverage as network of point-to-point delivery was critical to
success of an express delivery company in the C2C (customer-to-customer) era.
• The company doesn't need to invest heavily in infrastructure or a large workforce.
• By partnering with existing logistics providers, the company can quickly access new
geographical regions or specialized services.
Typical weakness
• Customers favored branded and premium goods over the non-standardized goods
offered by the network partners.
• Lack of direct control over the entire delivery process by the headquarters could be a
potential drawback.
• Partners may have different goals, priorities, or standards, which could negatively
impact overall service performance.
DIRECT OWNERSHIP MODEL
Definition
In the direct owneship model, the headquarters managed the entire delivery route, from
transportation to warehouses and distribution systems to delivering them to the customers.
This model gives the company full control over operations.
Typical strengths
• Headquarters manages the entire delivery process, ensuring consistent quality and
brand experience.
• Direct interaction with customers enables a stronger relationship, as well as the ability
to customize services based on customer needs.
• The company can adjust operations more easily to meet changing demand or market
conditions, optimizing processes and routes internally.
Typical weaknesses
• Significant upfront investment is required in infrastructure, technology, and labor,
which could strain financial resources.
• With high fixed costs, the company faces greater financial exposure, especially
during economic downturns or periods of slow growth.
• Scaling the logistics network to new markets or regions requires substantial
investment and time, making growth slower compared to more flexible models.

IN-HOUSE LOGISTICS PLATFORM

Definition
This model refers to a company that not only owns its logistics infrastructure but also
develops and utilizes proprietary technology platforms to manage the entire supply chain,
including order management, warehousing, inventory control, and last-mile delivery. Some
e-commerce players, such as JD.com and Suning, had built their own logistics teams and
integrated the e-commerce and last-mile delivery functions
Typical strengths
• High levels of business intelligence and automation enable faster, higher-quality
service, including same-day and next-day deliveries through in-house logistics.
• Full control over logistics and advanced technologies streamline processes,
optimize routes, and reduce operational costs over time
• Stronger ties with clients and better-quality service.
 Typical weakness
• Limited flexibility, as expansion requires significant infrastructure development.
• Potential challenges in scaling the in-house logistics to cover a wider geographic area.

II. Describe backdoor listing (pros and cons).

1. What is a Backdoor Listing?
A backdoor listing is one way for a private company to go public if it doesn't meet the
requirements to list on a stock exchange. Essentially, the company gets on the exchange by
going through a back door. It means that a company that is already listed on a stock
exchange acquires or merges with an unlisted company (usually a smaller or unprofitable
company) to achieve listing. This process is also known as a "reverse merger", "reverse
takeover” or “reverse IPO”.
2. Backdoor listing – pros and cons
Pros:
• It allowed the top players like SF Express and ZTO Express to go public quickly,
bypassing the typical IPO process.
• The backdoor listing strategy enable these companies to raise capital and expand
their operations faster.
• It provided an alternative route to the public market, especially when the IPO market
was unfavorable.
Cons:
• The backdoor listing process was seen as a way to circumvent the regular IPO
regulations and scrutiny.
• It was subject to regulatory crack down, as evidenced by the China Securities
Regulatory Commission (CSRC) tightening the rules on backdoor listings in June
2016.
• There were concerns about the valuation and financial disclosures during the
backdoor listing process.
• The companies that used backdoor listings were at risk of facing backlash from
investors and regulators.
 The backdoor listing can be provided a quicker way to the public markets for the major
express delivery companies, but it also raised regulatory and transparency concerns that
the companies had to be carefully.
 III. What is Discounted Cash Flow (DCF) analysis?
- Discounted cash flow (DCF) analysis is a financial valuation method that estimates the
value of an investment or company by calculating the present value of expected future cash
flows, using a discount rate (typically the Weighted Average Cost of Capital - WACC).
This method is commonly used to assess the intrinsic value of a business, considering its
ability to generate future cash flows.
- DCF can help investors who are considering whether to acquire a company or buy
securities. DCF analysis can also assist business owners and managers in making capital
budgeting or operating expenditures decisions. In other words, the value of money today
will be worth more in the future. It is a widely used and respected method, especially for
long-term investments.

Process:
- Forecast Future Cash Flows: Project the company’s free cash flow over a specified
period (usually 5-10 years).
- Discount the Cash Flows: Apply a discount rate (usually the WACC) to these future
cash flows to bring them to their present value.
- Terminal Value Calculation: Estimate the company’s terminal value (the value beyond
the forecast period), which is then discounted to the present.
- Sum the Values: Add the present value of the forecasted cash flows and the terminal
value to determine the total present value (NPV) of the company.

 Using DCF analysis can be advantageous and disadvantageous depending on the situation
it is used for. The two succeeding sections discuss the main DCF analysis pros and cons.

1. What are the Pros of DCF analysis?

It would be best for a financial analyst to use the DCF analysis if they are confident about
the assumptions being made. A discounted cash flow model requires a lot of detail to make
an estimate of the intrinsic value of a stock, and each of those details requires an assumption.

Pros:
• Comprehensive approach: DCF focuses on the future cash flows of a business,
rather than just historical financial statements, to determine its intrinsic value.
• Time value of money: By discounting future cash flows, DCF recognizes that cash
received today is worth more than cash received in the future.
• Flexibility: DCF allows for detailed and specific assumptions on future cash flows,
discount rates, and growth rates, which can provide valuable insights if based on
reliable data.
 • Considers risk: The discount rate used in DCF incorporates the time value of
money and the risk associated with the projected cash flows.
• Long-term Perspective: The discounted cash flow (DCF) analysis takes a long-
term view of investment potential, considering the entire timeframe of future cash
flows.

2. What are the Cons of DCF analysis?

Despite the advantages of the DCF analysis, it is also exposed to some disadvantages. The
main drawback of DCF analysis is that it’s easily prone to errors, bad assumptions, and
overconfidence in knowing what a company is actually “worth”.

Cons:
• Sensitivity to assumptions: DCF is highly sensitive to assumptions about future
cash flows, growth rates, and discount rates. Small changes in these assumptions
can lead to significant differences in the valuation.
• Time-Consuming and Complex: Conducting a DCF analysis requires detailed
financial modeling, data collection, and research, making it a resource-intensive
process. The complexity also makes it prone to errors if data inputs are incorrect
or assumptions are flawed.
• Difficulty in Forecasting: For companies in uncertain or rapidly changing
industries, accurately forecasting future cash flows can be difficult and lead to error
• Ignores non-financial factors: DCF analysis focuses solely on financial data and
may overlook important non-financial factors that can affect a company's value,
such as brand reputation, competitive positioning, and management quality.

 DCF analysis serves as a valuable tool for Panda Express as it navigates the complexities
of going public, providing insights into its valuation and supporting strategic decision-
making.