Recently, Shanghai Baoli Food Technology Co., Ltd. (hereinafter referred to as “Baoli food”) which produces pickles, wrapping powder, salad dressing and other sauces for fried cooking for KFC and McDonald’s updated its prospectus. The company plans to be listed on the main board of Shanghai Stock Exchange, and plans to raise 460 million yuan for Jiaxing production base (phase II) construction project, information center construction project and supplementary working capital.
Red Star capital Bureau noted that Baoli food mainly establishes cooperative relations with customers through direct sales, which is heavily dependent on key customers. In recent years, product prices have continued to decline, and it is difficult to effectively open the sinking market in the short term.
In addition, when the asset liability ratio of Baoli food was much higher than that of comparable companies in the same industry and the production capacity was not saturated, it planned to raise funds to continue to expand the production capacity, which raised questions from investors
dealer channel construction is weak
products are difficult to effectively open the sinking market
Baoli food is a food seasoning supplier. At present, its products mainly include compound seasoning, light cooking solutions and beverage and dessert ingredients. Its main customers include KFC, pizza hut, McDonald’s, DEX, Burger King, damile, Shengnong food, Tyson China, Cargill and Zhengda food. The company mainly establishes cooperative relations with customers by direct selling.
According to the prospectus, in 2018-2020 and the first half of 2021 (reporting period), the operating revenue of Baoli food was 711 million yuan, 743 million yuan, 905 million yuan and 722 million yuan respectively, and the net profit attributable to the parent company was 92.393 million yuan, 81.4983 million yuan, 134 million yuan and 96.4924 million yuan respectively.
Among them, composite seasonings such as powder wrapping, pickling and powder spreading used in frying and cooking contribute most of the revenue of Baoli food. During the reporting period, its proportion in the company’s main business income reached 71.82%, 78.47%, 72.78% and 57.67% respectively.
It is worth noting that in Chinese family cooking, fried food is usually cooked with egg white wrapped with flour, or buy prepared ingredients. Therefore, the composite seasoning products produced by Baoli food are not used frequently in Chinese family cooking, and the sales data in online channels such as Taobao are flat.
Baoli food’s products are mainly targeted at catering stores and other enterprise customers, and mainly establish cooperative relations with these enterprise customers through direct sales. During the reporting period, the sales revenue of direct sales accounted for more than 85%. The company’s dealer channel construction is relatively weak. In 2020, non direct sales revenue contributed only 13.91% of the company’s revenue, and sales and procurement personnel accounted for only 8.49% of the company’s total employees.
The product characteristics and weak sales channels make it difficult for Baoli food products to effectively open the sinking market.
From 2018 to 2019, the operating revenue of Baoli food increased by only 4.5%; In 2020, the company changed the product structure of compound condiments, reduced the average selling price and gross profit margin of products, and increased the sales of kitchen Avon light cooking solution products to related parties, which increased the company’s operating revenue by 21.8%. However, the increased income of Baoli food compound condiments was mainly provided by small and medium-sized customers. The amount of compound condiments purchased by big customers such as Yum China (09987. HK) at Baoli food did not increase significantly
depends on large customers, and the product price is lower
the gross profit margin is more than 10 percentage points lower than that of peers
Affected by the business model, Baoli food relies heavily on key customers. During the reporting period, the sales share of the company’s top five customers reached 387 million yuan, 372 million yuan, 403 million yuan and 322 million yuan respectively, accounting for 54.41%, 50.11%, 44.79% and 44.51% of the total annual revenue respectively. Although the overall share shows a downward trend, it is still high.
Yum China has always been the largest customer of Baoli food, but the sales revenue and related proportion have decreased year by year. During the reporting period, the company’s sales revenue to Yum China was 233 million yuan, 227 million yuan, 222 million yuan and 169 million yuan respectively, accounting for 32.81%, 30.53%, 24.81% and 23.41% respectively.
The catering chain accounts for a high proportion of major customers, which directly limits the product bargaining power of Baoli food. During the reporting period, the average sales price of the company’s compound seasoning decreased from 13600 yuan / ton in 2019 to 12600 yuan / ton in 2020, and continued to decline to 11900 yuan / ton in the first half of 2021.
In this case, during the reporting period, the gross profit margin of Baoli food’s main business was 32.51%, 33.45%, 32.10% and 32.95% respectively. In this regard, the company explained in the prospectus that the change in gross profit margin in 2020 is mainly affected by the increase in the income of products with low unit prices such as pulp powder, black pepper sauce and tomato sauce. In 2020, the gross profit margin of the company’s compound condiment decreased by 1.61 percentage points compared with 2019.
As a comparable listed company in the same industry of Baoli food, Qingdao Richen Food Co.Ltd(603755) (603755. SH), Sichuan Teway Food Group Co.Ltd(603317) (603317. SH) and Anji Foodstuff Co.Ltd(603696) (603696. SH) have gross profit margins of 46.89%, 41.48% and 37.18% respectively in 2020. In this way, the gross profit margin of Baoli food not only lags behind the average level of peers, but also differs by more than 10 percentage points compared with Qingdao Richen Food Co.Ltd(603755) and Sichuan Teway Food Group Co.Ltd(603317) .
When explaining the reason why the gross profit margin of the company is lower than Qingdao Richen Food Co.Ltd(603755) , Baoli food said in the prospectus that the income of multinational fast food chain customers of the company accounts for Qingdao Richen Food Co.Ltd(603755) high, while the competitors of multinational fast food chain customers in the field of compound seasoning are mainly large multinational enterprises such as weihaomei and Carey group, which are more competitive, As a result, the gross profit margin of the company’s main business is lower than Qingdao Richen Food Co.Ltd(603755)
nearly 40% of the funds raised are used to supplement cash flow
the plan to continue to expand production despite unsaturated production capacity
In this IPO, Baoli food plans to raise 460 million yuan, of which 253 million yuan is used for capacity expansion, accounting for about 55.10% of the total fund-raising; 31.9098 million yuan was used for the construction project of information center, accounting for about 6.94%; The remaining 175 million yuan will be used to supplement cash flow, accounting for about 37.96%, which is relatively high.
According to the prospectus, during the reporting period, the net cash flow generated from the operating activities of Baoli food was 109 million yuan, 119 million yuan, 131 million yuan and 48.6565 million yuan respectively, with steady growth during the period. However, from the perspective of solvency, due to the single financing channel and mostly indirect financing by banks, the asset liability ratio of Baoli food has been high.
During the reporting period, the asset liability ratios of Baoli food were 51.66%, 45.22%, 41.34% and 45.35% respectively. In the same period, the asset liability ratio of Qingdao Richen Food Co.Ltd(603755) , Anji Foodstuff Co.Ltd(603696) , Sichuan Teway Food Group Co.Ltd(603317) did not exceed 20%.
In this regard, Baoli food said that the company’s asset liability ratio was higher than that of its peers, mainly due to the company’s business development, new short-term loans to supplement working capital, and the company’s new special long-term loans for the construction of phase I of Zhejiang Baoli production base project. By 2020, the short-term loan and long-term loan of Baoli food were 62.1758 million yuan and 80.7111 million yuan respectively, accounting for 18.21% and 23.64% of the total liabilities of the company respectively.
During the reporting period, the capacity utilization rates of Baoli food powder products were 85.17%, 84.18%, 86.34% and 100.05% respectively, and the capacity utilization rates of sauce products were 78.79%, 74.98%, 90.56% and 87.10% respectively. Most of the time, it was unsaturated.
When the production capacity is not saturated most of the time, Baoli food plans to raise funds to continue to expand the production capacity, which also raises questions. According to the prospectus, the construction project of Baoli food Jiaxing production base (phase II) mainly includes 20000 tons of powder seasoning products, 6000 tons of bone soup seasoning products and 17500 tons of HPP high-pressure sterilization products. After the completion of the project, the company’s compound condiments and other products can increase the annual production capacity by 43500 tons, which is conducive to alleviating the current situation of insufficient production capacity and improving the market share.
However, for Baoli food, which lacks sinking sales channels, how to digest these new production capacity will be the problem faced by the company.
At the same time, Baoli food and its holding subsidiaries involved in a number of administrative penalties, exposing loopholes in the company’s management. For example, in February 2018, Shanghai Jinshan District Market Supervision Administration issued the decision on administrative punishment. The ingredient list of spicy sauce products with batch No. 20171030b produced by its subsidiary Shanghai Baorun on October 30, 2017 was only marked as “soy sauce”, which did not comply with the general rules for labeling prepackaged food under the national food safety standard gb7718-2011; At the same time, it is determined that the total value of the goods in this case is 8888 yuan and the illegal income is 1110 yuan. According to the relevant provisions of the food safety law of the people’s Republic of China, Shanghai Baorun was fined 20000 yuan and its illegal income was confiscated 1110 yuan.
It has been more than half a year since the prospectus was first disclosed on July 1, 2021, Baoli food has not received the inquiry letter from the CSRC, and its IPO has not made substantial progress. Red Star capital Bureau will continue to pay attention to the IPO process of Baoli food.
