This is an English adaptation of a FoodBud historical article originally published on September 6, 2021.
On September 6, 2021, Zhengzhou Qianwei Yangchu Food Co., Ltd. listed on the Shenzhen Stock Exchange under the stock short name “Qianwei Yangchu,” positioning itself as a frozen-food supply-chain specialist for foodservice.
The company issued 21.28 million shares at RMB 15.71 per share, raising RMB 334 million. During intraday trading, the share price reached RMB 21, up 33.67%, triggering a temporary suspension at 9:30 a.m. Trading resumed at 10:00 a.m., after which the stock was quoted at RMB 22.62, up 43.98%. After listing, the company’s market capitalization was RMB 1.9 billion.
According to its prospectus, Qianwei Yangchu was founded in 2012 and converted into a joint-stock company in 2016. It is one of China’s earlier suppliers focused on customized and standardized frozen flour-and-rice product solutions for B2B foodservice customers, including restaurants, hotels, group canteens and rural banquet operators.
During the reporting period, Qianwei Yangchu’s frozen flour-and-rice products were grouped by processing method into four broad categories: fried products, baked products, steamed/boiled products, prepared-dish products and others. Specific products included youtiao, sesame balls, egg tart shells, sweet potato balls and cartoon-shaped buns.
For the IPO, 2.128 million shares were placed offline, representing 10% of the total issuance, while 19.152 million shares were issued online, representing 90%. The article also states that the company completed RMB 282.1 million of IPO financing, with proceeds planned for Xinxiang Qianwei Food’s processing construction project, Phase III, and for a headquarters base and R&D center.
Qianwei Yangchu reported revenue of RMB 701 million, RMB 889 million and RMB 944 million in 2018, 2019 and 2020, respectively. Net profit for those years was RMB 58.6789 million, RMB 74.1213 million and RMB 76.5883 million.
In the first half of 2021, revenue reached RMB 568 million, up 54.80% year on year. Net profit was RMB 35.79 million, up 47.67% year on year.
The company forecast revenue of RMB 878 million to RMB 893 million for January to September 2021, with net profit of RMB 54.79 million to RMB 55.79 million, up 12.31% to 14.36% year on year. It expected net profit excluding non-recurring items of RMB 53.80 million to RMB 54.80 million.
Yum China and its affiliates, including KFC China and Pizza Hut China’s parent company, were Qianwei Yangchu’s largest customer. They accounted for 30.20%, 30.72% and 23.37% of revenue in 2018, 2019 and 2020, respectively.
Citing GF Securities Research Institute, the article said China’s foodservice-channel revenue for frozen flour-and-rice products was RMB 12.2 billion in 2018. On that basis, Qianwei Yangchu’s share of China’s foodservice frozen flour-and-rice market was about 5.75%.
Sales to the company’s top five direct customers totaled RMB 260 million, RMB 320 million and RMB 290 million in 2018, 2019 and 2020, representing 36.38%, 36.08% and 31.13% of total operating revenue.
The company’s raw and auxiliary material procurement received into inventory, excluding finished-product purchases and outsourced processing services, totaled RMB 430 million, RMB 560 million and RMB 540 million in 2018, 2019 and 2020.
Qianwei Yangchu’s operating model included both general-purpose production and customized production. These accounted for about 65% and 35% of revenue, respectively, and the split remained broadly stable.
Distributor-channel revenue represented 59.31%, 58.98% and 64.26% of main business revenue over the most recent three years. The company said distributors helped maintain end customers, accelerate cash collection, and reduce transportation and storage costs.
The company mainly sold general-purpose products to distributors and customized products to direct customers.
Its distributor base was concentrated among small and mid-sized accounts with annual sales below RMB 1 million. In 2020, there were 777 such customers, accounting for 85.67% of distributors. The article described two main types: customers focused mainly on seafood and frozen prepared foods, for whom frozen flour-and-rice products were seasonal add-ons, and smaller county- or district-level distributors carrying many categories with flexible purchasing behavior and relatively weaker customer stickiness.
During the reporting period, Qianwei Yangchu adjusted its distributor rebate assessment cycle once. The initial rebate period was six months: distributors purchasing more than RMB 1 million of products, tax included, from January to June 2018 and growing purchases by more than 20% year on year could receive a reward equal to 1% of collections.
In July 2018, the company changed the cycle to 12 months. Distributors purchasing more than RMB 1 million, tax included, from July 2018 to June 2019 and growing purchases by more than 20% year on year could receive a 1% reward, with the same approach used in later periods.
For accounting treatment, Qianwei Yangchu accrued distributor rebates for July to December at year-end as liabilities and reduced revenue accordingly. After distributors met reward criteria in the following second half, the company recognized physical rebates and sales revenue during subsequent distributor purchases.
For direct customers, Qianwei Yangchu provided sales rebates only to Wallace, Walmart and Lao Xiang Ji during the reporting period.
For Wallace, the rebate standard was 5% of sales collections, paid as a direct rebate. The company issued red-letter invoices as sales discounts, recognized revenue net of rebates, and calculated output VAT accordingly.
For Walmart, the rebate standard in 2018 and 2019 was 8% of sales, also as a direct rebate.
Qianwei Yangchu began providing rebates to Lao Xiang Ji in 2020. The rebate standard was 1.5% of sales, in the form of physical goods. Revenue and output VAT were recognized based on sales net of rebates. In January 2021, the company settled 2020 sales rebates by providing free goods.
Qianwei Yangchu was spun out of Synear Food rather than built from scratch, beginning independent operations in 2012.
In China’s traditional frozen flour-and-rice consumer market, Sanquan Food, Synear Food and Wanchai Ferry were described as the three leading players. Li Wei had been the actual controller of Synear Food, holding about 70% of its equity.
In December 2017, to address horizontal competition, Li Wei transferred his Synear Food equity to Synear’s management team led by Wang Peng. Wang Peng exited Qianwei Yangchu.
Before the IPO, Li Wei held 62.49% of Qianwei Yangchu through Gongqingcheng Zhiji and was the largest shareholder. JD.com affiliate Suqian Hanbang held 5.13%, and Juewei affiliate Shenzhen Wangju also held 5.13%.
After the IPO, Li Wei held 46.86% through Gongqingcheng Zhiji and remained the largest shareholder. Suqian Hanbang held 3.85%. Qianhai New Hope held 6.7%, Shangde Hewei held 4.13%, Gongqingcheng Kaili held 4.07%, and Shenzhen Wangju held 3.85%.
The article also noted that Qianwei Yangchu had invested in a vertical foodservice media company, Can Yin Lao Ban Nei Can, later renamed Can Qi Lao Ban Nei Can. The company’s full legal name was Henan Watt Culture Communication Co., Ltd. On July 21, 2016, Qianwei Yangchu invested RMB 25 million for a 10% stake in Henan Watt, recorded as other non-current financial assets.
Following implementation of the new financial instruments standard, available-for-sale financial assets were reclassified into other non-current financial assets in 2019. Qianwei Yangchu’s 10% stake in Henan Watt was measured at fair value using a market approach. As of December 31, 2020, the value of these other non-current financial assets was RMB 22.0861 million.
Note: IPO proceeds, market capitalization, shareholding percentages and forward guidance figures are historical figures from the September 6, 2021 article.