Source of this article: Times Weekly Author: Mu Yuchen
"Latiao No. 1 Brother" has finally embarked on a new journey, but the road seems a bit bumpy at the beginning.
On December 15, 2022, Weilong (09985.HK) officially landed on the Hong Kong Stock Exchange. According to an announcement from the Hong Kong Stock Exchange, it set the Hong Kong IPO issue price at HK$10.56 per share, raising net funds of HK$898.9 million. However,
suffered a loss on its first day of listing. As of the close of the day, 's share price finally closed down 5.11%, closing at HK$10.02 per share. Weilong's stock price fell for three consecutive days. Until December 20, Weilong's stock price rebounded slightly, closing at HK$9.15 per share, with a total market value of HK$21.513 billion.
In fact, Weilong has attracted market attention since its first submission in May 2021. Before the IPO, it even completed a blockbuster financing, involving CPE Yuanfeng, Hillhouse, Sequoia China, Yunfeng Fund, and many other well-known institutions. The valuation once exceeded 60 billion yuan (this is calculated in RMB, and those not specifically noted below are all in RMB). Judging from the reaction after the listing, compared with the previous valuation peak, Weilong's value in the capital market has shrunk. In addition, focusing on Weilong's operating performance, its revenue growth began to slow down. The prospectus shows that from 2019 to 2021, Weilong's revenue growth rate was 23%, 21.71%, and 16.5% year-on-year respectively. In the first half of this year, its revenue was approximately 2.261 billion yuan, down 1.8% from 2.303 billion yuan in the same period last year, and profits turned from profit to loss, with losses reaching 261 million yuan.
It is worth noting that on the eve of Weilong’s launch, #young people don’t like eating spicy strips? was on the Weibo hot search, triggering extensive discussions. Many netizens complained about Weilong’s price increase, saying bluntly that “hot strips are no longer affordable.”
Not only that, the spicy snack industry has also welcomed a group of snack giants. Whether it is in the spicy hinterland where Weilong focuses on, or on the path of diversified layout, these giants have shown their ambitious side.
Source: Weilong’s official Weibo Is
“shrinking” when it goes on the market?
Weilong’s road to listing has not been smooth sailing. As early as 2021, Weilong submitted the form to the Hong Kong Stock Exchange twice. However, the first time because the listing materials were not approved within 6 months, it "automatically expired". The second time the form was submitted and passed the listing hearing, the listing was postponed due to poor market conditions. On June 27 this year, Weilong submitted a statement to the Hong Kong Stock Exchange for the third time, and was heard by the Hong Kong Stock Exchange again on June 28. On November 23, after Weilong updated its prospectus again, it finally got what it wanted and successfully landed on the Hong Kong Stock Exchange.
On December 14, when Weilong announced the offer price and placement results, it stated that the offer price had been determined at HK$310.56 per share sold. On December 5, Weilong issued an announcement saying that its offering price was between HK$10.4 and HK$11.4 per share. The final price of HK$10.56 per share was almost the following price limit, which also means that institutions did not give Weilong a too high premium for . After
was listed, Weilong suffered a stock price break on the first day, and then its stock price fell for three consecutive days. As of the close of December 19, Weilong's stock price fell to HK$8.85 per share, with a total market value of HK$20.808 billion (equivalent to RMB 18.6 billion).
Guosheng Securities Maize Yuan told the Times Weekly reporter that it is not uncommon for Hong Kong stocks to break IPO. The break rate of new stocks in the Hong Kong market in 2021 is 45%. Although the first-day break situation has improved in 2022, 35% of new stocks still have a first-day break. The reasons for the Hong Kong stock market break include overseas market fluctuations, rising yields on U.S. debt , expectations of a global economic recession, and the transmission effect of the downturn in the secondary market.
"After Weilong went public, its market value still exceeded RMB 20 billion. Compared with domestic snack companies, for example, as of the close of trading on December 20, BESTORE (603719.SH) had a market value of RMB 14.649 billion, h With the market value of tml2 Three Squirrels (300783.SZ) of 8.537 billion yuan, Weilong is still a company with a relatively high market value. In the context of Weilong's first net loss in revenue in 2022, it is not surprising that the stock price fell after the break." Mai Zeyuan added.
In sharp contrast to the current lonely situation, Weilong's financing experience before going public can be called "unlimited glory".
Tianyancha shows that Weilong completed the Pre-IPO round of financing on May 8, 2021. This is also the first time that Weilong has introduced external capital in more than 20 years since its establishment. Weilong's prospectus shows that investment institutions such as CPE, Hillhouse, Tencent , Yunfeng Capital, and Sequoia Capital China Fund have subscribed for a total of 122 million shares of Weilong, and have paid a consideration of US$549 million.
The above-mentioned investment of US$549 million replaced 5.86% of Weilong’s equity . If calculated based on this, Weilong's valuation at that time had reached US$9.369 billion, equivalent to more than 60 billion yuan. Such a valuation even exceeds the total market value of five companies including Qiaqia Foods (002557.SZ), Three Squirrels, Bestore, Yanjin Shop (002847.SZ) and Ganyuan Foods (002991.SZ).
In just over a year, Weilong's value in the capital market has shrunk by more than 60% compared to its previous valuation peak.
Zhang Liang, chairman of Shenzhen Baoding Capital Investment Management Co., Ltd., analyzed to a reporter from Times Weekly, "The overall market investment environment, combined with the characteristics of the industry and the performance of the company, it is expected that the market value of Weilong will shrink severely. At present, Weilong's products are relatively single, and its ability to resist risks is The company's strength is not very strong, and due to the impact of the epidemic, a decline in performance is inevitable. "
In Zhang Liang's view, financing and listing as early as possible can ensure that the company can successfully weather the comprehensive impact of the epidemic, so Weilong's choice to go public at this time may also be a good choice. As the market recovers, Weilong in the snack food track will also fully benefit. Its performance is also expected to recover and grow, and its stock price and market value will stop falling and stabilize.
"The No. 1 Hot Tiao Brother" is slow to make money
Weilong occupies a pivotal position in the industry by virtue of its ability to attract money from its large single product spicy noodles. However, judging from its performance in recent years, it also has many troubles. The
prospectus shows that from 2019 to 2021, revenue increased from 3.385 billion yuan to 4.8 billion yuan, while net profits were 658 million yuan, 819 million yuan, and 827 million yuan respectively. The growth rate slowed down significantly. increased 38.18%, 24.41%, and 0.97% year-on-year, showing a situation where "it is difficult to increase revenue and profit."
Not only that, Weilong's performance has also turned around. In the first half of this year, Weilong's revenue was approximately 2.261 billion yuan, down 1.8% from 2.303 billion yuan in the same period last year, while profits turned from profit to loss, with losses reaching 261 million yuan.
As for the reason for the loss, Weilong stated in the prospectus that it was mainly due to one-time share-based payments related to investments, which were partially offset by the company's gross profit increasing from 850 million yuan to 862 million yuan during the same period.
It is worth noting that Wei Long, the "No. 1 Latiao Brother", has a rare situation of being "unable to sell". Seasoned noodle products are Weilong's main source of income. In the first half of 2022, Weilong's sales of seasoned noodle products were 81,589 tons, a decrease from 94,670 tons in the same period of 2021. Not only spicy strips, sales of Weilong's vegetable products, soy products and other products also declined in the first half of this year.
Source: Screenshot of Weilong's prospectus
In response to the decline in business sales, Weilong attributed the decline in sales mainly to the impact of the epidemic on production and delivery. The difference is that soy products and other products are mainly due to optimizing the allocation of marketing resources and reducing marketing activities for related products. The decrease in sales of seasoned pasta products and vegetable products is mainly due to price adjustments made in the first half of 2022 due to the adoption of new packaging, production processes, formulas and other upgrades to major product categories.
In the first half of this year, Weilong raised the prices of its products twice in response to the rise in raw materials. However, judging from the performance in the first half of the year, the price increase does not seem to have sufficiently effective results in boosting performance. Take seasoned flour products as an example. Seasoned flour products increased from 14.8 yuan/kg in the first half of last year to 16.4 yuan/kg in the first half of this year. However, their revenue decreased by 4.3% in the first half of this year.
Not only that, Weilong’s price increase has also caused consumer dissatisfaction. On the eve of its listing, Weilong had suffered a loss of 261 million yuan for #伟龙half-year# and #Don’t young people like spicy strips? The topic # was on the Weibo hot search, and many netizens in the comment area complained about Weilong’s price increase and began to look for Weilong’s replacement.
Zhu Danpeng, vice president of the Guangdong Provincial Food Safety Promotion Association, said in an interview with a reporter from Times Weekly, "For spicy strips, when consumers think that the product quality is similar, they will definitely choose products with higher price/performance ratio. However, consumers' price sensitivity to Weilong is only a small factor affecting its revenue. The main reason is that the epidemic has affected Weilong's heavy consumer groups. For example, many junior high schools and elementary schools have been closed, and there is no campus week. Regarding the impact of price increases, Weilong also admitted in the prospectus, "This has caused our customers to take a certain period of time to cope with the price adjustment, so it has been temporarily affected." After the listing, the test is still going on. The industry generally believes that the reason why Weilong can go from cheap snacks to IPO has a lot to do with tearing off labels such as "junk food" and "dirty food".
In 2005, CCTV exposed Pingjiang that workers at a gluten production company had stolen the illegal additive Mycobacterium in raw materials. Since then, Latiao has been involved in a food safety crisis and has been called "junk food."
In order to get rid of the negative evaluation of La Tiao, Weilong made a series of "whitewashing" measures. Since 2010, Weilong has introduced automated equipment such as stretch film and packaging machines to continuously improve the production process. In 2014, Weilong's marketing team invited photographers to enter the operation workshop to take company photos for Weilong. Subsequently, this group of neat and clean workshop photos quickly became popular, which changed consumers' perception of Weilong.
Source: Weilong’s official Weibo
Afterwards, Weilong, having tasted the benefits, began to carry out a series of marketing activities. Riding on the popularity of Apple mobile phones and and Xiaomi mobile phones , during this year's Double Eleven, it imitated the appearance and movements of Jin Zhengfeng in the Korean drama " please reply 1988", paired with Buddhist copywriting, and a series of operations, making Weilong's marketing popularity unabated.
With its large-scale spicy strips and various flower market marketing, Weilong has successfully emerged from the industry. According to the Frost & Sullivan Report, Weilong ranks first among Chinese spicy snack food companies, and occupies the first market share in the subcategories of seasoned noodle products and spicy snack vegetable products.
However, the above advantages are gradually no longer available.
The spicy snack food industry is highly fragmented, and the spicy snack category lacks protective barriers for differentiated competition, so the market share is easily divided by other companies. The Frost & Sullivan report shows that in terms of retail sales, the market share of the top five companies in 2021 will be 11.5%. Among them, Weilong is the largest spicy snack food company in China, with a market share of only 6.2%.
As early as 2015, Three Squirrels launched the spicy strips category. In 2017, it officially launched the spicy strips series, and achieved sales of 4.8 million copies in just 7 months. Currently, it has more than ten spicy strips products. Yanjin Shop bluntly stated that it wants to "become the second in the spicy strip industry". It built a spicy strip product research and development center in 2017 and invested heavily in building a 100,000-level clean workshop.
Yufeng Group, which also spends a lot of money to build high-quality production workshops, is Spicy Prince . It spent 30 million yuan to build a 100,000-level GMP clean workshop, claiming that it would use pharmaceutical-grade standards to make spicy strips. Different from the sweet and spicy taste of Weilong Spicy Tiao, Spicy Prince has insisted on making only spicy flavors since its birth, and has become a representative of Xiangpai Spicy Tiao that can compete with Weilong. From January to September this year, Spicy Prince’s online sales exceeded “100 million” for the first time, with a three-year sales compound growth rate of 112%.
can foresee that the competitive event in the spicy strip industry may open a new curtain. Competitors are following Weilong's old path, removing the label of "junk food" and establishing standardized workshops. For Weilong, even if it has been successfully listed, if it wants to have a bright future, it may have to break through under heavy pressure first.
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