Click to read the original text for details As one of the world's largest suppliers and traders of grain, edible oil, and agricultural products, Yihai Kerry Arowana Foodstuffs Co., Ltd. (hereinafter referred to as "Arowana"), a subsidiary of Wilmar International Group, has made new progress in its listing journey. Yesterday (July 12), the CSRC website disclosed the prospectus for Arowana's initial public offering on the ChiNext board, with the company planning to raise 13.87 billion yuan in this IPO. First, let's look at Arowana's basic situation: According to the prospectus, Arowana is one of the largest agricultural and food processing enterprises in China, with its main business being the R&D, production, and sales of kitchen food, feed raw materials, and oil technology products. In recent years, China's agricultural and food processing industry has continued to grow. To consolidate its competitive advantage, the company focuses on the kitchen food sector, committed to providing customers with a richer, more diverse, and higher-quality product portfolio through the rational layout of high-standard comprehensive production bases, continuous R&D innovation, and competitive production, sales, and logistics costs. The mastermind behind Yihai Kerry is Robert Kuok, the richest man in Malaysia. He not only holds the title of "Asian Sugar King" but also owns several renowned industries such as the Shangri-La Hotel. With the news of Yihai Kerry's IPO, the market predicts that the listing of this "Arowana" is likely to replace Wens Foodstuff Group as the new leader of the ChiNext board. Net profit has already surpassed Wens Foodstuff Group
Potentially challenging for the "ChiNext leader"
The "coaching report" shows that China Securities Co., Ltd. signed a coaching agreement with Yihai Kerry on February 26 this year and completed the coaching filing registration the next day. In early June, three months later, China Securities submitted a coaching summary report based on the 2016 to Q1 2019 reports and applied for coaching acceptance. Yihai Kerry is targeting the ChiNext board. If it eventually lists, it is also expected to become the new "ChiNext leader." According to Choice data, among companies on the ChiNext board, according to Zhiyan Consulting data, Wens Foodstuff Group (300498.SZ) had a net profit (not referring to net profit attributable to shareholders of the listed company) of 4.256 billion yuan, ranking first in 2018 (companies that have not yet published their 2018 annual reports are not compared). In contrast, Yihai Kerry's 2018 operating revenue was 167.074 billion yuan, with a net profit of 5.517 billion yuan. The "Coaching Report" also disclosed that as of March 31, Yihai Kerry's net assets reached 63.974 billion yuan, while Wens Foodstuff Group's were 35.44 billion yuan, showing that Yihai Kerry has "surpassed in all aspects." According to the prospectus data, from 2016 to 2018, Yihai Kerry's revenue was 133.494 billion yuan, 150.766 billion yuan, and 167.074 billion yuan, respectively, with net profits of 854 million yuan, 5.284 billion yuan, and 5.517 billion yuan. As of the end of the first quarter of this year, Yihai Kerry's operating revenue reached 40.351 billion yuan, with a net profit of 830 million yuan. It is worth noting that Wilmar International, the parent company behind Yihai Kerry, also has main businesses such as oilseed crushing and edible oil refining. The 2018 financial report shows that the company's annual operating revenue reached 44.497 billion US dollars, a year-on-year increase of 2.1%; core net profit was 1.304 billion US dollars, a year-on-year increase of 27.4%. According to the corresponding exchange rate, revenue from the Chinese market accounts for more than half of Wilmar International's operating revenue. The "Luhua" brand, which ranks third in market share, also has a significant connection with Wilmar International. According to Tianyancha data, companies such as Zhoukou Luhua Sesame Industry Co., Ltd., Zhoukou Luhua Strong-flavor Peanut Oil Co., Ltd., Laiyang Luhua Fengyi Plastic Co., Ltd., Changshu Luhua Edible Oil Co., Ltd., and Inner Mongolia Luhua Sunflower Seed Oil Co., Ltd. all have shareholding by Wilmar International's affiliated companies. In terms of net profit, the top two companies in the industry, Wens Foodstuff Group and CATL, had net profits of 4.256 billion yuan and 3.753 billion yuan in 2018, respectively. Yihai Kerry's 2018 net profit exceeded 5 billion yuan, more than 40% higher than the former two. In terms of market value, according to Wind data, based on the closing price on July 12, the company with the highest market value on the ChiNext board is Wens Foodstuff Group, with a market value of 204.8 billion yuan. Mindray Medical and CATL rank second and third with market values of 193.2 billion yuan and 162.1 billion yuan, respectively. These three companies have all entered the ChiNext "hundred-billion market value club." According to estimates, based on the common 22 times price-to-earnings ratio for A-share listings, if calculated with Arowana's 2018 profit of 5.517 billion yuan, the initial market value of Arowana upon listing on the ChiNext board could be as high as 121.374 billion yuan. This also means that its listing will immediately enter the hundred-billion market value ranks. With just 7 limit-up days, Arowana's market value could exceed 200 billion yuan and potentially surpass the current largest market value company on the ChiNext board, Wens Foodstuff Group. However, in the prospectus, Arowana warns of the risk of large inventories, stating that the company's inventories mainly consist of raw materials and finished goods. Considering the impact of stocking up for the Spring Festival consumption peak, as of the end of 2016, 2017, 2018, and March 2019, the book value of the company's inventories was 28.304 billion yuan, 33.994 billion yuan, 37.088 billion yuan, and 29.324 billion yuan, respectively, indicating a relatively large inventory balance. In addition, Arowana plans to raise 13.87 billion yuan from this share issuance for projects such as the kitchen food flour project. Two previous attempts to go public From the end of February this year, when the CSRC officially disclosed that Yihai Kerry had accepted listing coaching, to June 11, when it was clarified that the coaching had been completed, the entire coaching period took only 3 months. In the view of investment bankers, compared to the usual 6 to 12 months of coaching, Yihai Kerry's listing coaching time was relatively short, making it a case of faster coaching completion. The disclosure of the prospectus now undoubtedly accelerates Yihai Kerry's listing plan. However, this is not the first time Yihai Kerry has attempted an IPO. As early as 2009, Yihai Kerry explicitly stated its intention to spin off from its parent company for independent listing, with the listing location chosen as Hong Kong, China, and a planned fundraising amount of 3 to 4 billion US dollars. However, due to changes in the external economic environment, the Hong Kong listing plan was subsequently shelved. Image source: Shetu.com (unrelated to the text) In 2017, the parent company Wilmar International again announced a restructuring of its Chinese business and prepared for the spin-off and listing of its Chinese business segment. This was the second time Yihai Kerry had news of an IPO attempt. After the news of Yihai Kerry's IPO, industry analysts believe that this indicates that Yihai Kerry's business integration in China has been completed. By restarting the listing, it aims to integrate more social funds to support business continuity and prepare for expanding into new sectors. Robert Kuok's "Legendary Life" The founder of Yihai Kerry is the famous Malaysian richest man, Robert Kuok. He is not only known as the "Asian Sugar King" but also holds the title of "Hotel King," and these honors are a summary of Robert Kuok's business career. Robert Kuok is from Fuzhou, Fujian. In 1909, he came to Malaysia with his father, Kuok Khoon Chen, and founded Tongsheng Company, assisting his father in managing the company. It wasn't until he was 24 that he started his own business with 100,000 pounds, beginning his legendary life. In 1957, Malaysia gained independence, and the British began to withdraw their assets. This change in circumstances created gaps in industries that were partially dependent on Britain. The astute Robert Kuok realized that Malaysia was highly dependent on British sugar companies. Seizing the opportunity, he founded a sugar factory and subsequently established a complete sales network. This venture was a great success, earning him the prestigious title of "Sugar King" in Malaysia. Four years later, Robert Kuok established the now-famous "Shangri-La" hotel in Singapore. After its great success in Singapore, Robert Kuok capitalized on the momentum and expanded Shangri-La to other Asian countries. Through decades of effort, Shangri-La became the largest luxury hotel group in Asia, earning Robert Kuok the title of "Hotel King." As mentioned above, Robert Kuok is a Chinese descendant who went abroad from Fujian. In 1978, China implemented the millennium plan of reform and opening up. Robert Kuok saw development opportunities in his motherland and invested 500 million US dollars to build the Beijing China World Trade Center. Unexpectedly, this investment later brought him rental income of over 5 billion yuan annually. In 1988, with the improvement of Chinese people's lives, Robert Kuok saw opportunities in China's oil market. He had his nephew Kuok Khoon Hong cooperate with COFCO Group to establish "Nanhai Oil Company" (the predecessor of Arowana). In June 2005, under Robert Kuok's leadership, Yihai Investment Co., Ltd. was established (the predecessor of Yihai Kerry). At the end of 2006, Robert Kuok used Wilmar International as a platform to acquire Kerry Oils & Grains for 2.7 billion US dollars, elevating the grain and oil industry to a higher level. On January 31 this year, Yihai Kerry was wholly converted into a joint-stock company, and the company name included the familiar "Arowana" characters. But Arowana is not the company's only well-known brand. Yihai Kerry also owns several other famous brands, such as the olive oil brand "Olivolia" endorsed by Nicholas Tse, daily chemical products brand "Jiejing 100," and other edible oil brands like "Hujihua" and "Xiangmanyuan." After decades of operation, in the "2019 Hurun Global Rich List" released by the Hurun Research Institute, Robert Kuok ranked 15th in Greater China with 95 billion yuan. Strength showdown between the two grain and oil giants Undoubtedly, with the hundred-billion grain and oil giant heading for listing, the oligopolistic competition in the grain and oil market will become even more intense. In the view of most people, Yihai Kerry will form direct competition with leading enterprises like COFCO Group, and direct confrontation between large enterprises "showing off their muscles" will become the norm. Zhiyan Consulting data shows that in 2017, among the top three domestic peanut oil brands by market share, Arowana ranked first with 23.86%, COFCO Group's Fulinmen accounted for 16.05%, and Luhua accounted for 13.15%. In its prospectus, Yihai Kerry listed several competitors, with COFCO Group at the forefront. According to information, COFCO Group's core business covers grain, oil, sugar, and cotton, including crops such as rice, wheat, and corn, as well as bioenergy, and also involves food, finance, real estate, and other industries. In the food sector, COFCO Group owns influential brands such as "Fulinmen" and "Mengniu." Zhu Danpeng, a Chinese food industry analyst, previously said in an interview with National Business Daily (WeChat ID: nbdnews) that overall, the industry has basically entered an era of oligopoly. For small and medium-sized enterprises, there are not many opportunities to share in consumption upgrades and demographic dividends, and the market structure is highly concentrated. Conversely, Arowana's choice to IPO amid intensifying industry competition will play a crucial role in enhancing the company's overall strength and building a sustainable, differentiated core competitiveness in the future. Various edible oils on supermarket shelves (Image source: NBD reporter Lan Suying) In the grain and oil industry, a consumption pattern dominated by basic oil types and blended oils has formed, but in the professional product market, brands such as Duoli, Changshouhua, and Xiwang can also be seen in areas like sunflower oil and corn oil. Small packaging is one of the secrets to Arowana's success and a shared history with its current biggest competitor, Fulinmen. In 1991, a joint venture formed by COFCO and Kerry produced Arowana edible oil, and this small-packaged edible oil quickly expanded market share through concept marketing. However, subsequent equity struggles became complicated, leading to the breakdown of the cooperation between the two parties. Robert Kuok built factories and acquired grain and oil enterprises in China, while COFCO created its own "Fulinmen" brand. From then on, the two officially became competitors. The food oil market with huge future potential will undoubtedly become the focus of competition between the two giants. According to statistics from the National Grain and Oil Information Center, in the 2017/18 market year, China's edible vegetable oil production reached 29.63 million tons, with an average annual compound growth rate of 4.55% from the 2012/13 market year to the 2017/18 market year; in the 2017/18 market year, China's edible vegetable oil consumption reached 34.4 million tons, with an average annual compound growth rate of 4.54% from the 2012/13 market year to the 2017/18 market year. In the view of industry insiders, whether "Arowana," which currently holds a brand advantage among consumers, can continue to defend its brand moat is an important point to watch in the subsequent competition between the two giants. (The article content or data is for reference only and does not constitute investment advice. Investors who operate accordingly do so at their own risk.) Source: National Business Daily