Click the image to register for participation. While you were carrying Six Walnuts to visit relatives and friends, its parent company also received its own Spring Festival gift. At around 9 a.m. on February 12, 2018, the parent company of Six Walnuts, Hebei Yangyuan Zhihui Beverage Co., Ltd., held a bell-ringing ceremony at the Shanghai Stock Exchange, officially listing on the A-share capital market. The securities abbreviation is "Yangyuan Beverage" with securities code 603156; the 43.05 million new shares issued this time began trading on February 12, 2018. Yao Kuizhang, Chairman of Yangyuan Zhihui Beverage Co., Ltd., General Manager Fan Zhaolin, local government leaders, and fruit farmer representatives from walnut-producing areas in Xinjiang and Yunnan rang the opening bell. Yangyuan Beverage thus became the last food and beverage company to ring the bell before the Spring Festival and also the first food and beverage company to ring the bell for listing in 2018. Dependence on a Single Major Product, Intensifying Market Competition Yangyuan Beverage, since its predecessor was established in September 1997, has been committed to the R&D, production, and sales of plant-based protein beverages primarily made from walnut kernels, and is one of the earlier enterprises in China to produce walnut milk beverages. The company has a wide variety of specific products, including walnut milk, walnut peanut milk, walnut almond milk, nut milk, and almond milk, among which walnut milk has multiple specific varieties. However, these products mainly belong to plant-based protein beverages primarily made from walnut kernels, and walnut milk is the main product. In 2014, 2015, and 2016, the sales revenue of walnut milk accounted for 94.90%, 95.41%, and 97.30% of the company's main business revenue, respectively. From the perspective of product categories, the company's product categories are relatively single. This is the result of the company's strategy of allocating resources around building a major product, but it has also become a pain point of concern in the industry. In response, Six Walnuts stated that the major product strategy will continue to lead the company's sustainable development. In the short to medium term, since the company still has markets in South China, Central China, Southwest, Northwest, and Northeast to further expand, and markets in North China, East China, and Central South to deeply tap, in the long term, the expandable market space will relatively shrink, which will impose certain constraints on the sustained and rapid growth of the company's sales revenue. In addition to the single product category, Yangyuan Beverage also faces two major risks from internal and external sources. The internal risk comes from the production and operation management of its off-site production bases. Currently, Yangyuan Beverage has three self-owned production bases in Hengshui, Hebei; Chuzhou, Anhui; and Yingtan, Jiangxi, as well as two entrusted processing bases in Linying, Henan, and Jianyang, Sichuan. Whether the off-site production bases can comprehensively, systematically, and strictly implement the internal control and management systems formulated by the headquarters, and whether the headquarters can cultivate and supply key personnel for the off-site bases, will become major challenges for the company's future production and operation management. To this end, Yangyuan Beverage has hired a professional management consulting company to assist in formulating and implementing a reserve talent training plan. The external market competition deserves more attention. Plant-based protein beverages such as walnut milk, due to their nutritional and health characteristics, have gradually become preferred and noticed by more consumers, with broad market space, thus attracting more manufacturers to enter the industry. Currently, well-known brands such as Chengde Lulu, Yili, Mengniu, Sanyuan, Wahaha, and Panpan have all entered the walnut milk industry, and the company faces the risk of intensified market competition. Four Attempts, Not All for Money On December 12, 2017, the CSRC Issuance Examination Committee announced that the initial public offering of Hebei Yangyuan Zhihui Beverage Co., Ltd., the parent company of Six Walnuts, was approved. After four attempts, Six Walnuts finally obtained a ticket to the capital market. As early as 2011 and 2012, Six Walnuts had applied for IPO twice consecutively, both ending in failure. In March 2017, Six Walnuts launched its third IPO, which was not approved. Such persistence in the capital market is not merely for money. In the "Yangyuan Beverage Initial Public Offering of A-share Listing Announcement" published by the Shanghai Stock Exchange on February 9, Yangyuan Beverage stated that since the company came under the actual control of Mr. Yao Kuizhang in 2005, its operating revenue has grown rapidly year by year. Meanwhile, the company adopts a settlement method of payment before delivery, resulting in abundant cash flow. The prospectus also shows that Six Walnuts' operating profits for the past three years were 2.38 billion yuan, 3.33 billion yuan, and 3.44 billion yuan, respectively. Why is Six Walnuts, which is not short of money, eager to go public? Yangyuan Beverage has its own considerations. It stated that it expects to achieve the listing goal through the initial public offering, transforming into a listed company, thereby fully utilizing the supervisory mechanism of the capital market to maintain comprehensive and lasting standardization; enhance public attention and brand awareness; further consolidate and strengthen competitive advantages and industry position, and avoid being overtaken by competitors. The total amount raised in this IPO is 3.2 billion yuan. The raised funds will be used for the "Marketing Network Construction and Market Development Project" and the "Hengshui Headquarters Annual Production of 200,000 Tons of Nutritional Plant-based Protein Beverage Project." After the project is completed, the company's brand positioning in consumers' minds will be continuously consolidated and enhanced, the coverage breadth and depth of the sales network will be further expanded, and channel construction will be further strengthened; four old can-filling production lines at the headquarters will be eliminated, and four new high-standard can-filling production lines will be added to improve production efficiency. Listing Is Just the Beginning; Urgent Need to Expand New Categories Will listing guarantee success? No one has the answer. Yangyuan Beverage stated that after long-term market cultivation, it has established strong market advantages. On the basis of deeply cultivating third- and fourth-tier cities, it has achieved development in first- and second-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen in the past two years. Currently, it has over a thousand distributors and over a million retail terminals. The FMCG industry in which the company operates requires continuous substantial sales expenses in brand building, market expansion, and channel construction, mainly including advertising fees, development fees, and promotion fees. In the first half of 2017, marketing expenses were 555 million yuan, accounting for 15.13% of operating revenue, while from 2014 to 2016, they were 857 million yuan, 921 million yuan, and 1.073 billion yuan, respectively. It is understood that Six Walnuts, by cooperating with CCTV and leading satellite TV mainstream platforms, has horizontally integrated phenomenal intellectual and brain-health programs such as "The Brain," "Tonight 80s Talk Show," "No Challenge No Miracle," "Go! Science," "Poetry and Calligraphy," and "Upward! Poetry." The Xue Yuhu team of Founder Securities pointed out that as the growth rate of the overall beverage category gradually slows down, plant-based protein beverages, as a sub-industry with relatively faster growth, have attracted more attention, and many beverage and dairy giants have launched new products. To address the current trend of declining revenue, the company urgently needs category expansion. Guided by new healthy products, the target population can be broader, not just limited to rural gift-giving channels, but also applicable to urban high-income groups, and prices can be appropriately increased, opening up space for the company's future market and revenue growth. For example, leading food and beverage companies such as Dali and Yili have begun to venture into soy milk and other businesses, and competition in the healthy beverage market will become more intense in the future. Currently popular beverages such as coconut water, which are natural and additive-free plant-based protein beverages, are likely to become a future trend. The company should consider developing new products that align with health trends to create new growth points. The company has an excellent marketing team, the original walnut milk product can provide stable cash flow, and after listing, the company's financial strength will be stronger, giving it obvious advantages in expanding new categories. Yangyuan Beverage stated that it has formulated a medium- and long-term strategy based on the external environment and its own advantages, namely, to continue focusing on the main business, with the goal of continuously consolidating and enhancing the brand's position in consumers' minds, and to allocate company resources in all aspects to continuously strengthen its core competitiveness. Source: Food Business Observation (ID: fbc180)