Last night, the official website of Hong Kong Stock Exchange updated the listing documents of Weilong. According to sources quoted by Bloomberg yesterday, the company plans to raise shares as soon as Thursday, raising no more than $150 million. Details remain to be discussed.
In fact, although Wei Long started his career with the “five cents hot stick”, he has a “cash ability” that can not be underestimated: last year, his income was nearly 4.8 billion yuan, the profit margin was a bit higher than the industry average, and he was invested by Tencent, Hillhouse and other well-known institutions. So, why does a small spicy stick have the opportunity to “eat” listed companies? What armor and soft ribs does Weilong have?
Make a fortune
Wei Long’s road to the market has been a long one.
Before this update, the company submitted three prospectuses to HKEx in May, November and June 2021 respectively, but no further action was taken after the hearing. At that time, it was reported that Weilong had postponed its listing due to poor market environment.
Until September this year, Bloomberg quoted a source as saying that Wei Long was considering restarting the Hong Kong stock IPO as soon as October, possibly raising $500 million. At that time, it was also said that Wei Long sought a valuation of about 4.7 billion dollars, but the IPO size and timing details may still change.
According to the latest rumors, Weilong’s fundraising has decreased from 500 million to 150 million US dollars.
As for the reasons for this change, Shen Meng, Executive Director of Xiangsong Capital, analyzed to Xiaoshidai that although Weilong has absolute brand power and share advantage in the spicy stick market, the current market environment is not good, and investors’ attitudes towards domestic consumption growth potential have changed. In addition, the global monetary policy adjustment and the looming economic recession have also increased investors’ concerns about future expectations.
If everything goes well, Weilong will successfully land in the capital market more than 20 years after its birth.
According to the “history of prosperity” published on Weilong’s official website, the company was first started in 2001, and its founders were Liu Weiping and Liu Fuping. At that time, Liu Weiping from Hunan went to many cities to look for entrepreneurial opportunities. He went all the way north from Yueyang to Luohe, Henan Province, where he was not familiar with his life. After two days of traveling there, he decided on the product.
“Once, I met an old lady who sold beef gluten noodles on a river bank in Luohe. It was very interesting. I bought a bowl of beef gluten noodles. It tasted very good. I asked her where she made it. I was afraid that I might steal her business. At first, she refused to tell me.” Liu Weiping said with a smile.
After some inquiry, Liu Weiping found a workshop to produce beef gluten noodles, and paid a deposit for the shopkeeper to improve the grinding tools to produce beef gluten noodles with chili powder, which he named “eel strips”. Later, the name was changed to “fish sticks” because it was difficult to write. “Fish sticks” are also called “hot sticks” by more and more consumers because of their unique spicy taste.
Liu Weiping revealed that after he initially decided on the products in Luohe, he asked his brother to bring people to Luohe from his hometown to start his business. At the beginning, they produced artificial meat and bean skin by hand, mixed with Hunan spicy food and sent it to the market for sale. The response was good. However, due to lack of experience in the early stage of entrepreneurship and lax cost control, when workers can receive hundreds of yuan of salary every month, as the boss, he only earns dozens of yuan, and even after the rent is removed, he still loses. To this end, Liu Weiping’s parents have repeatedly dissuaded him from continuing his business.
From the overall performance, Weilong has achieved continuous growth in the past few years. In 2019, 2020 and 2021, Weilong’s total revenue reached 3.385 billion yuan (RMB, the same below), 4.12 billion yuan and 4.8 billion yuan respectively. However, in the six months ended June 30, 2022, its total revenue decreased slightly by 1.8% year-on-year to 2.261 billion yuan.
In terms of profits, Weilong’s profits in 2019, 2020 and 2021 were 658 million yuan, 819 million yuan and 826 million yuan, respectively. However, in the six months ended June 30, 2022, Weilong recorded a loss of 261 million yuan, mainly related to one-time share based payments related to previous investments, partially offset by gross profits increasing from 850 million yuan to 862 million yuan in the same period.
In terms of profit margin, Weilong also “outperformed the market”. Its net profit margin will reach 17.2% in 2021. According to Frost Sullivan, this net profit margin is higher than the average net profit margin of about 10% of China’s leisure food industry in 2021.
Wei Long, with strong ability to attract money, has also attracted many star investors. The prospectus shows that it has previously introduced CPE, CWL Management XVIII Limited, Hillhouse, Tencent, Yunfeng Fund, Sequoia Capital China Fund, Duckling Fund, L.P., Housheng Investment, Haisong Capital and Shanghai Hongluo as investors.
Equity structure of Weilong
The founder brothers of Weilong still hold most shares. According to the prospectus, as of June 30, 2022, about 84% of Weilong’s ordinary shares were held by “Hehe Global Capital”, which was ultimately controlled by Liu Weiping and Liu Fuping. At present, Liu Weiping, 44, is the Chairman and Executive Director of Weilong, and Liu Fuping, 41, is the Executive Director and Vice Chairman of Weilong.
The snack agency also noticed that Sun Yinong, once a Nestle native, served as the CEO of Weilong after reviewing the prospectus. Before Nestle’s divestiture of Yinlu peanut milk and canned eight treasure porridge business, he was the CEO of Yinlu, and earlier worked in Coca Cola system for more than ten years.
In September 2021, Sun Yinong joined Wei Long as the special assistant to the president and was appointed as the CEO in December of the same year. Among Wei Long’s six executive directors, Sun Yinong is also the only one who does not belong to the Liu family.
List of Weilong Executive Directors
From the operating data, Weilong’s spicy stick business seems to be “really fragrant”, but there are also weaknesses that cannot be ignored.
First of all, Weilong, which always feels cheap, has experienced a decline in sales after raising prices. The company said that the sales volume in the ten months ended October 31, 2022 decreased slightly, mainly because of the regional recurrence of COVID-19 in several regions of China; And price adjustment due to the latest product upgrade of major product categories in the first half of 2022.
The prospectus shows that in the first half of this year, Weilong adjusted the prices of seasoned flour products and vegetable products, but did not disclose the range and extent of price adjustment, only saying that “customers need a certain time to deal with the relevant price adjustment”.
It is worth noting that in these two categories
“The dealers are not allowed to sell the products of other companies that belong to the same category or have competitive relations with our products, our counterfeit products or our expired, deteriorated or other defective products.” The above prospectus wrote, but also noted that this clause “has not been used in the standardized contract since 2021”.
As Weilong also allows dealers to sell products to sub dealers, if a dealer withdraws because it does not accept the above requirements, Weilong may lose more outlets.
Wei Long also said in the prospectus that he could not guarantee that “we will not lose any dealers due to competitors, which may cause us to lose some or all of the favorable arrangements with such dealers, and may lead to the termination of our relationship with other dealers”.
Next, how to restore the growth of sales of the blockbuster products, avoid the impact of the demand for healthy food, and cope with more fierce competition are the keys to whether Wei Long can tell a good story about spicy snacks.
Follow the “snack generation (WeChat: foodinc)” and see the wonderful news.
Tencent shares, Yinlu’s former CEO is at the helm, with a loss of 261 million in the first half of the year. Is there any story about Wei Long