Juewei Sells 6.16% Stake in Hefu Noodle for $28 Million as Chain Turns Profitable in First Half

This is an English adaptation of a FoodBud historical article originally published on October 25, 2021.

On October 25, 2021, Juewei Food announced that its wholly owned subsidiary had completed the transfer of part of its stake in Jiangsu Hefu Catering Management, the operator of Hefu Noodle.

Hefu Noodle reported revenue of RMB 1.1 billion in 2020 with a net loss of RMB 210 million. In the first half of 2021, revenue reached RMB 850 million, and the company turned profitable with net profit of RMB 13.85 million.

Juewei’s Partial Exit

Juewei’s investment platform Shenzhen Wangju transferred a 6.16% stake in Hefu Noodle for USD 28 million, or about RMB 179 million, implying a valuation of RMB 2.9 billion for Hefu Noodle.

The buyers and consideration were:

• CMC: USD 19.458 million
• Zhongwei: USD 5.189 million
• Tencent: USD 1.916 million
• LFC: USD 29,000

According to Hefu Noodle’s financing disclosures, the company completed nearly RMB 800 million in Series E financing in July 2021. The round was led by CMC Capital, with new investor Zhongwei Capital and existing investors Tencent Investment and Longfor Capital participating.

Juewei Food’s 2021 interim report showed that its investment in Hefu Noodle totaled RMB 230 million. Through this transfer, it realized RMB 179 million in cash. Shenzhen Wangju still directly held 16.9% of Hefu Noodle after the transaction.

Juewei’s announcement stated that Shenzhen Wangju signed the equity transfer and capital increase agreement related to Hefu Noodle’s Series E financing on June 29, 2021. By October 22, 2021, all closing conditions for the first-stage transaction had been satisfied and the transaction had been completed. After closing, Shenzhen Wangju’s stake fell from 23.0802% to 16.9229%.

The final confirmed transaction income was USD 28,000,020, with an estimated impact on Juewei Food’s net profit of about RMB 110 million, unaudited.

Operating Scale and Supply Chain

Data cited by FoodBud from relevant media showed Hefu Noodle’s supply chain was being strengthened and scale effects were becoming more visible.

Its recently commissioned noodle production base had annual capacity of 20,000 tons, described as a leading level in the fresh wet noodle category, and could support supply for 1,500 stores. For context, Hefu Noodle’s store-count target for 2021 was 450 stores.

The base was built to food-industry clean-workshop standards, with constant temperature and humidity controls. It used automated noodle rolling, automated packaging, and transport processes intended to protect product quality from factory to warehouse, logistics, stores, and consumers.

Hefu Noodle’s nearly 100,000-square-meter modern factory had entered the design stage. The planned factory was expected to support RMB 7 billion in sales capacity and meet the company’s development needs for five to ten years. The company also planned to open capacity to the wider industry through OEM/ODM services.

Store Metrics

By the end of June 2021, Hefu Noodle had more than 340 stores nationwide. Reported operating metrics included:

• Average store revenue: RMB 550,000 per month
• Sales per square meter: RMB 4,800 per month
• Revenue per employee: RMB 55,000 per month
• Average ticket: RMB 45
• Daily sales: more than 150,000 bowls of noodles
• Annual customers served: more than 50 million visits

As store numbers expanded, costs declined. In the 1-to-30-store stage, Hefu Noodle reportedly found profitability difficult. In the 30-to-100-store stage, its control over ingredient costs became clearer, with ingredient cost ratio falling from 35% to about 25%. After reaching scale, average cost across the full product line was 22%-23%, helped by production-process improvements.

Rent accounted for as much as 26% of total costs. As brand awareness increased, malls began inviting the chain to enter, rents became negotiable, and in some cases base rent could be waived in favor of sales-linked rent. In 2019-2020, rent cost ratio was controlled at about 16%, and overall net profit margin was about 15%. Shanghai and Beijing contributed the highest margins, both at around 18%. In most regions, table turnover was 7-8 times per day, while stores in South China were somewhat weaker.

Juewei’s Rationale

Juewei Food said the transaction was intended to realize investment appreciation and a partial exit while supporting Hefu Noodle in introducing important investors and optimizing its shareholding structure. Juewei said the transaction would support Hefu Noodle’s long-term development and help improve the long-term value of Juewei’s remaining stake.

Note: Financing, valuation, profitability, store targets, factory capacity plans, and other forward-looking figures are historical as of the 2021 article and announcement.