---
title: "Nongfu Spring and Uni-President's Supplier Files for IPO: Why Is the Tea Industry So Eager for a 'First Stock'?"
description: "On July 3, the China Securities Regulatory Commission (CSRC) published the prospectus of China Tea Co., Ltd. (hereinafter 'China Tea'). A subsidiary of COFCO, China Tea is one of the tea suppliers to beverage companies such as Nongfu Spring and Uni-President. The company had submitted its materials on June 18, 2020, and they were accepted on June 24. For a long time, the A-share market has lacked a true tea stock. Although China Tea attempted to list nearly 20 years ago, it failed for various reasons. Will this attempt succeed?"
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-07-07"
language: "en"
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# Nongfu Spring and Uni-President's Supplier Files for IPO: Why Is the Tea Industry So Eager for a 'First Stock'?

> On July 3, the China Securities Regulatory Commission (CSRC) published the prospectus of China Tea Co., Ltd. (hereinafter 'China Tea'). A subsidiary of COFCO, China Tea is one of the tea suppliers to beverage companies such as Nongfu Spring and Uni-President. The company had submitted its materials on June 18, 2020, and they were accepted on June 24. For a long time, the A-share market has lacked a true tea stock. Although China Tea attempted to list nearly 20 years ago, it failed for various reasons. Will this attempt succeed?

On July 3, the China Securities Regulatory Commission (CSRC) published the prospectus of China Tea Co., Ltd. (hereinafter 'China Tea'). A subsidiary of COFCO, China Tea is one of the tea suppliers to beverage companies such as Nongfu Spring and Uni-President. The company had submitted its materials on June 18, 2020, and they were accepted on June 24. For a long time, the A-share market has lacked a true tea stock. Although China Tea attempted to list nearly 20 years ago, it failed for various reasons. Will this attempt succeed?

**-01- Fund Allocation: Expanding Production Capacity, Marketing Network, and Brand Building**
China Tea is currently a member enterprise of COFCO Group, headquartered in Beijing, with multiple production companies and other branches in Fujian, Hunan, Yunnan, Guangxi, and other regions, and its marketing channels are distributed across the country.

China Tea's business is mainly divided into two segments: branded tea and raw material tea. Branded tea is centered on 'China Tea', supplemented by sub-brands such as 'Monkey King' and 'Butterfly' to form a brand matrix. Raw material tea mainly provides high-quality primary processed tea to downstream customers, including domestic and international beverage manufacturers such as Uni-President, Nongfu Spring, Suntory, and Jinmailang. **In this IPO, China Tea plans to issue no more than 93.75 million shares, and the proceeds, after deducting issuance expenses, will be invested in two projects: one is 289.7 million yuan for the Yunnan Pu'er tea production capacity project, and the other is 251 million yuan for the marketing network and brand building project.** It can be seen that apart from expanding the marketing network and brand building, most of the funds are invested in the Yunnan Pu'er tea project, indicating that Pu'er tea will become an important development direction for China Tea, mainly located in Yunnan. Earlier, **in February 2019, China Tea spent nearly 20 million yuan to acquire a 51% stake in Fengqing Liushan Tea Co., Ltd., a subsidiary of Yunnan Six Famous Tea Mountains**, which was also seen by the industry as evidence of China Tea's push into Yunnan. Why does China Tea place such importance on Pu'er, and why focus on Yunnan?

**-02- To Strengthen Pu'er, Yunnan Must Be Secured First**
First, let's look at the market share of various tea categories in China. Data shows that in 2019, among domestic market sales, green tea sales reached 1.2142 million tons, accounting for 60%. Dark tea followed with 15.6%, and black tea with 11.2%. It can be seen that green tea accounts for more than half of the market, but green tea has many sub-categories, such as West Lake Longjing, Biluochun, Xinyang Maojian, Lu'an Guapian, Lushan Yunwu, etc. The number of enterprises in the green tea industry is also large, with varying scales, and the low industry concentration is more prominent in the green tea category.

Therefore, China Tea stated in its prospectus that it 'will take Pu'er tea and green tea as the main growth points, further improve the category layout, and enhance the company's comprehensive competitiveness.' In its future plans, it also stated that it will strengthen the promotion of Pu'er tea, increase its own production capacity for Pu'er tea, and make up for the shortcomings in green tea business mainly through joint ventures and mergers and acquisitions. According to the prospectus, **from 2017 to 2019, China Tea's Pu'er tea production volumes were 77.70 tons, 929.10 tons, and 1533.70 tons, respectively, showing a surge in production. Meanwhile, the purchase amounts for Pu'er tea raw materials were 235 million yuan, 400 million yuan, and 361 million yuan, respectively.** To increase Pu'er tea production capacity, Yunnan cannot be ignored. Data shows that in 2019, Yunnan Province had a total tea garden area of 6.999 million mu, surpassing Guizhou to become the largest in the country. Especially in recent years, Pu'er tea has almost become synonymous with Yunnan tea.

Combining the above two points, it is not difficult to understand why China Tea will invest most of its raised funds in the Yunnan Pu'er tea production capacity project. Will China Tea successfully pass the IPO and list? If successful, what impact will it have on China's tea industry?

**-03- China's Tea Industry with 'Categories but No Brands' Needs Leading Enterprises**
According to the prospectus, **from 2017 to 2019, China Tea's revenues were 1.229 billion yuan, 1.49 billion yuan, and 1.628 billion yuan, respectively, with a compound growth rate of 15.11%; net profits were 181 million yuan, 145 million yuan, and 166 million yuan, respectively.** However, despite its scale, China Tea accounts for only about 1% of the entire Chinese tea market. According to data from the China Tea Marketing Association, China's tea consumption has continued to grow in recent years. **In 2019, domestic tea consumption reached 2.0256 million tons, an increase of 115,000 tons from the previous year, a growth rate of 6.02%; the entire domestic market size exceeded 270 billion yuan.** Such a huge market size fully demonstrates the enormous development potential of China's tea market.

From China Tea's prospectus, it can be seen that its business covers almost all tea categories, including oolong tea, Pu'er tea, Liubao tea, dark tea, white tea, flower tea, green tea, and black tea. Despite being backed by COFCO, the sales share of China Tea's main tea categories is generally on the rise, but as the first state-owned tea company in New China and the earliest national professional corporation established in the trading system, a 1% market share is indeed not very high. Dayi Group, which China Tea regards as a competitor in its prospectus, also achieves annual revenues at this level, and both are among the best in China's tea enterprises. According to statistics, in 2017, there were about 60,000 tea enterprises in China, of which more than 1,600 were scale enterprises, only 87 had total assets exceeding 100 million yuan, and only 6 had total assets exceeding 1 billion yuan.

This shows how low the concentration of the domestic tea market is, and why no tea company has yet been listed. China Tea's highest share, oolong tea, only has a 1.74% market share. According to the '13th Five-Year Development Plan for China's Tea Industry', by the end of 2020, the agricultural output value of tea in China should reach 200-220 billion yuan, and the total economic volume should strive to exceed 500 billion yuan. Such a vast market inevitably contains huge opportunities. On the other hand, China's tea industry is still dominated by small and medium-sized private enterprises, with few brand enterprises that have reached a certain scale and possess the entire industry chain of planting, processing, and sales.

In recent years, with the rise of online sales, small tea enterprises, including primary processing plants, have sprung up like mushrooms. It seems lively, but in reality, there is a lack of leading enterprises to guide the industry, and the market has long been in a relatively chaotic state, which is not conducive to industry development. To complete the leap from a big tea country to a strong tea country, China must cultivate a number of international big brands.

In liquor, there is Moutai; in cigarettes, there is Zhonghua; but what about tea? Therefore, it is not only tea enterprises that need to use the capital market to strengthen themselves, but also the Chinese tea industry as a whole needs true leading enterprises to guide its development under the current pattern. In fact, on the same day, July 3, the CSRC also published the prospectus of another tea company, Lancang Ancient Tea. Although its revenue scale is less than a quarter of China Tea's, its net profit is about half of China Tea's, so it is still unknown who will become the first tea stock. But regardless of who it is, we look forward to the birth of the first tea stock.


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