Since Juewei Food (603517.SH) listed on the A-share market in March this year, the 'big three' of the duck neck industry have gathered in the capital market—Zhou Hei Ya (01458.HK), Juewei Food, and Huang Shang Huang (002695.SZ) are competing from afar. Securitization has exposed the battle for the 'first duck neck stock' to the sunlight, and in the 'waves of the capital market', a new situation has emerged: Huang Shang Huang has fallen behind, while the battle for the top spot is fiercely contested between Zhou Hei Ya and Juewei Food. Comparison of market values of Zhou Hei Ya, Juewei Food, and Huang Shang Huang. Image source: Wind Information Zhou Hei Ya and Juewei Food's 'battle for the first duck neck stock by market value' once reached a point of 'one after another'. On November 11, 2016, Zhou Hei Ya listed on the capital market before Juewei Food. However, Zhou Hei Ya, which rushed to the capital market four months earlier than Juewei Food, had its total market value overtaken by Juewei Food. On March 29, when Juewei Food's new stock issuance saw nine consecutive limit-ups (including the first day of listing), the company's total market value of approximately 20.4 billion yuan was about 1.4 billion yuan higher than Zhou Hei Ya's on the same day, making it the 'first duck neck stock by market value'. But the celebration did not last long; after five trading days, Zhou Hei Ya regained its position: starting from April 7, the gap in total market value between Zhou Hei Ya and Juewei Food gradually widened. As of the close on May 23, Zhou Hei Ya's total market value reached 17.3 billion yuan, while Juewei Food's was 14.3 billion yuan, a difference of 3 billion yuan. In fact, the 'chase' between Zhou Hei Ya and Juewei Food in market value is merely a reflection of the two companies' operating conditions in the capital market. In actual operations, the 'battle' between Zhou Hei Ya and Juewei Food is equally fierce. The 2016 performance results have respectively labeled Zhou Hei Ya and Juewei Food as 'the most profitable' and 'the best seller'. The financial data of the two companies last year show that in 2016, Zhou Hei Ya and Juewei Food achieved operating revenues of 2.82 billion yuan and 3.27 billion yuan respectively, both more than twice the revenue of Huang Shang Huang in the same period. In terms of revenue, Juewei Food led Zhou Hei Ya by 400 million yuan, thus becoming the 'best seller' in the duck neck industry that year. However, Zhou Hei Ya, with a net profit attributable to shareholders of 720 million yuan in the same period, left Juewei Food and Huang Shang Huang far behind. Its reputation as 'the most profitable' is not undeserved; financial data show that Zhou Hei Ya's gross margin last year was 62.3%, twice that of Juewei Food and 1.9 times that of Huang Shang Huang; its net margin for the period was 25.4%, 2.2 times that of Juewei Food and 3.3 times that of Huang Shang Huang. Comparing the two companies' revenue per store might be more illustrative. As of the end of 2016, Zhou Hei Ya and Juewei Food had 778 and 7,924 offline stores respectively, with the latter being more than ten times the former. But on average per store, Zhou Hei Ya's revenue per store was as high as 3.62 million yuan, while Juewei Food's was only 410,000 yuan, with the former nearly nine times the latter. Although Zhou Hei Ya has profitability that is difficult for peers to match—thanks to its insistence on a direct-sales model—in pursuing high profits, Zhou Hei Ya has also given up a considerable portion of market share, allowing Juewei Food, which relies on a franchise system to rapidly increase its store count, to gain an advantage. According to research reports from China Merchants Securities, Juewei Food currently holds an 8.9% market share, leading Zhou Hei Ya by 3.4 percentage points, ranking first in the industry. In fact, the current concentration of the domestic leisure marinated food industry is not high, with more enterprises choosing small-scale, small-workshop operations, encroaching on nearly 80% of the market share. In response to such an industry environment, analysts at China Merchants Securities pointed out in their research report, 'The market for marinated products is expected to further consolidate towards leading enterprises.' Each has its own advantages and disadvantages in data, and the battle for the 'top spot' remains unresolved. However, the recent competitive strategies of these two leading enterprises have diverged: to increase their respective market shares in leisure marinated products, Zhou Hei Ya, which earns the most, has 'played' with cross-industry ventures, while Juewei Food, which sells the most, relies on IPO fundraising to continue expanding its duck neck production capacity. Zhou Hei Ya had previously attempted to increase market share and revenue by expanding its offline store count. In 2016, the company's offline store count increased by 21.4% year-on-year, but that year, its net profit growth attributable to shareholders was only 29.5%, the lowest in the past three years. The store expansion strategy had limited results, so Zhou Hei Ya set its sights on new product markets. On May 5, Zhou Hei Ya announced the launch of marinated crayfish 'Ju Yi Xia', entering the billion-yuan crayfish market. Jiemian News found that Zhou Hei Ya's move into the crayfish market had been foreshadowed. On April 2 this year, Zhou Hei Ya announced a strategic cooperation agreement signed between its wholly-owned subsidiary and the People's Government of Qianjiang City, Hubei Province. The subsidiary plans to establish additional processing facilities in Qianjiang City when conditions are ripe to expand the group's production capacity for current or new products. Jiemian News found through public information that Qianjiang City is known as the 'Hometown of Chinese Crayfish'. It is worth mentioning that the 'Global Crayfish Development Forum' will be held there in June this year. Juewei Duck Neck, which had previously built a national sales network through a franchise system, hopes to continue increasing its market share through capacity expansion. This year, Juewei Food raised 740 million yuan through its IPO, and combined with its own funds, invested a total of approximately 950 million yuan in the construction of marinated products projects in 8 provinces and cities, with a total capacity of 945 million tons. In addition, to meet the needs of its marketing network, Juewei Food also plans to build 180 new direct-sales flagship stores this year. For Juewei Food, with the boost of the franchise system, increasing the number of stores is an important reason for maintaining rapid net profit growth. In 2016, Juewei Food's store growth rate was 10.5%, but its net profit growth attributable to shareholders for the period was 26.4%, although lower than Zhou Hei Ya's, it was still higher than Juewei Food's average net profit growth rate over the past three years. Furthermore, according to estimates by China Merchants Securities, based on data from 2015 when China had 1,397 counties, 11,315 townships, and 20,515 towns, Juewei Food's potential store space for channel sinking is around 16,400 stores. This means that Juewei Food's future new store count still has room to double. Source: Jiemian -END-