(Original title: Valuation plummeted by 60% and an IPO is needed. Latiao “No. 1 Brother” Wei Long is stuck in a performance growth bottleneck. Cornerstone investors “lack of confidence”)
“Cornerstone investors have lost confidence,” said a senior private equity institutional investor in Shanghai.
On December 5, Latiao’s “No. 1 Brother” Weilong officially launched its IPO, and the offering price was set at HK$10.40 to HK$11.40 per share. If calculated based on the median offering price of HK$10.90, the market value of Weilong is around HK$25 billion (approximately RMB 22 billion).
It is worth mentioning that in the pre-IPO round of financing in May last year, Weilong’s post-financing valuation exceeded 60 billion yuan. This also means that this time, for a smooth IPO in the Hong Kong stock market, Weilong’s discount is more than 60%.
Behind this, problems such as rising raw materials, declining sales, and dependence on a single product have become a shadow over Weilong’s valuation.
Valuation has shrunk severely
“Childhood Memories of Post-90s” Weilong will be listed on the Hong Kong Stock Exchange on December 15. However, for Weilong’s institutional investors, there are mixed feelings.
According to public information, Weilong is the largest spicy snack food company in China. Weilong is mainly engaged in spicy snack food. Its products are mainly divided into three categories: seasoned noodle products, vegetable products, soybean products and others.
According to Frost & Sullivan, based on retail sales in 2021, Weilong ranks first among all spicy snack food companies in China, with a market share of 6.2%, which is 3.9 times that of the second largest company and surpasses the second place The sum of the market shares of the companies ranked No. 5 to No. 5, and the market shares of seasoned noodle products and spicy leisure vegetable products are both ranked first.
It is precisely because of this industry status that Weilong has attracted a number of star investment institutions including CPE Yuanfeng, Hillhouse, Tencent, Yunfeng Fund, Sequoia China, etc. in its first financing since its establishment 20 years ago. The post-investment valuation of the financing reached 9.4 billion US dollars (about 65 billion yuan).
However, the valuation of Weilong has shrunk severely due to the Hong Kong stock market listing. The company’s fundraising scale has also shrunk from last year’s planned US$1 billion to the current maximum of HK$1.099 billion.
“When Weilong started financing in 2021, the secondary market was very popular with the food industry, which raised the valuation of the secondary market of the food industry. Although the financing of Weilong Food is very low-key and not even open to the outside world, it is still sought after, and many funds have not been able to catch up with the quota, which directly pushes up the valuation of Weilong Food.” Independent economist Wang Chikun pointed out.
However, starting from the second half of 2021, due to factors such as the epidemic and a sluggish market environment, the tide of the leisure food and beverage industry has gradually faded, new stocks in the secondary market have continued to break, and the stock prices of listed companies have also continued to fall.
As of now (December 7), the total market value of Naixue’s Tea and Zhou Hei Ya is around 12 billion Hong Kong dollars; in the A-share market, the total market value of Liangpin Store, Three Squirrels, Yanjin Store, and Jinzai Food is only 158 million Hong Kong dollars. 100 million yuan, 8.553 billion yuan, 13.8 billion yuan, 4.713 billion yuan.
It is worth mentioning that the 21st Century Business Herald reporter noticed that during the pre-IPO round of financing, institutional investors also signed a supplementary agreement with Weilong and its controlling shareholder to prevent the risk of future decline in Weilong’s valuation .
According to Weilong’s prospectus, in April 2022, Weilong Company and its controlling shareholder entered into a supplementary agreement to the share purchase agreement with investors before the issuance, agreeing to pay the above-mentioned institution a total consideration of US$1,576.2689 (approximately RMB 11,000). Investors issued and sold a total of 158 million shares with a par value of only $0.00001 per share of common stock.
Of these, 158 million shares have a fair value of approximately $629 million. According to relevant accounting standards, such share issuance has generated a one-time share-based payment expense of 629 million yuan, which is deducted from the 2022 consolidated income statement. As a result, Weilong Company will suffer a loss of 261 million yuan in the first half of 2022.
However, if this is the case, the “losses” of many investment institutions are also difficult to smooth out. In the prospectus, Wei Long said frankly: “The cost paid by investors before the offering is US$2.1635, which is a premium of about 55.11% over the offering price.”
Performance growth slows down
In fact, Weilong’s IPO in Hong Kong has gone through several twists and turns. Previously, Weilong submitted prospectuses to the Hong Kong Stock Exchange three times in May 2021, November 2021, and June 2022 respectively, and they all “died up” until November 23, 2022, when the prospectus was updated again to be successfully listed.
“In recent years, the fast-moving consumer goods industry has entered a stage of relatively slow growth. Although Weilong’s revenue will increase in 2021, due to rising raw material costs, single products, and ‘unhealthy’ labels, its profit margins are increasingly limited or even compressed , As a result, the growth rate of net profit will slow down sharply in 2021. If the above phenomenon does not change, Weilong’s profitability may be difficult to improve.” said Zhu Danpeng, an analyst in China’s food industry.
In Zhu Danpeng’s view, singleness is the biggest problem of the company at present. It can be summarized as single category, single channel, single scene, single customer and single model. Under these single influences, the attention and pursuit of Weilong in the capital market is difficult to meet expectations.
According to the prospectus, the growth rate of Weilong’s revenue and profit has slowed down between 2019 and 2021. From 2019 to 2021, Weilong’s revenues were 3.385 billion yuan, 4.120 billion yuan, and 4.800 billion yuan, and the profits during the period were 658 million yuan, 819 million yuan, and 827 million yuan, and the net interest rates were 19.4%, 19.9%, and 17.2% respectively. .
Among them, Latiao is the bulk of the company’s sales revenue. From 2019 to 2021, seasoned noodle products accounted for 73.1%, 65.3%, and 60.8% of sales revenue respectively.
Since entering 2022, Weilong’s performance decline has not been reversed, and due to product price increases, there has been a significant decline in sales.
The important raw materials of Weilong products mainly include soybean oil, flour and kelp, but in recent years, the prices of these raw materials have been on the rise. According to the prospectus, in the first half of 2022, the average selling price per kilogram of Weilong seasoning noodle products has reached 16.4 yuan, compared with 14.8 yuan in the first half of 2021.
During the period, Weilong raised prices several times to cope with rising raw material prices, but the result was a decline in sales.
In the first half of 2022, Weilong’s revenue fell by 1.8% year-on-year to 2.26 billion yuan, of which seasoned noodle products revenue was 1.341 billion yuan, a year-on-year decrease of 4.3%.
Weilong said bluntly in the prospectus that the reason for the decrease in sales in the first half of this year was that, on the one hand, the regional recurrence of the new crown epidemic in various places affected the company’s production and delivery; Price adjustments were made for the latest product upgrades in key product categories. “Sales have been temporarily impacted as customers take time to adjust to the price adjustment.”
A reporter from the 21st Century Business Herald noticed that by the end of June 2022, 76.4% of Weilong’s sales channels were actually in the sinking market, and only 23.6% were in first- and second-tier cities. This may be the reason why consumers are quite sensitive to the price of Weilong products.
Shen Meng, executive director of Chanson Capital, believes: “Weilong’s hot strip products are already very large, and the future growth space may be limited. For investors, the return potential is slightly insufficient, and the mutual needs of Hong Kong stock companies and investors are the decisive factor. The key to the success of the listing, so the reason for the previous two failures cannot be ruled out that it cannot attract enough investment demand.”
In addition, Weilong highly relies on offline channels to obtain stable revenue, and there are also risks that cannot be ignored.
From 2019 to 2021, Weilong’s offline channel sales revenue accounted for 92.6%, 90.7%, and 88.5% of the total revenue respectively, and accounted for 89.4% in the first half of 2022. Almost the vast majority of sales revenue comes from offline dealers.
Weilong said frankly in the prospectus: “We rely on third-party distributors to put our products into the market, and we may not be able to control our distributors and their sub-distributors and retailers.”
“Distributors choose or increase sales of competitors’ products, fail to renew distribution agreements and maintain relationships with existing distributors, reduce distributors, delay or cancel orders, etc. will cause Weilong’s income to fluctuate and decrease.” The above announcement also stated that say.
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