This is an English adaptation of a FoodBud historical article originally published on January 6, 2022.
Tianye Innovation Co., Ltd. recently announced that it signed an IPO tutoring agreement with Guohai Securities on December 31, 2021, and submitted listing-tutoring filing materials to the Guangxi branch of the China Securities Regulatory Commission.
On January 5, 2022, the Guangxi regulator completed Tianye's tutoring filing, and the filing report was published on the CSRC's online service platform.
Before the filing, Tianye had just completed a new private placement, raising RMB96.6 million in total. Nayuki invested RMB38.64 million, while Auntie Shanghai invested RMB3.22 million.
Tianye said the proceeds were mainly needed to supplement working capital and repay bank borrowings, given rapid performance growth.
Using 2020 ratios of operating assets and operating liabilities to revenue, Tianye estimated 2021 revenue would reach RMB450 million. On that basis, it calculated a 2021 working-capital shortfall of RMB66.83 million.
As of June 30, 2021, Tianye had RMB207 million in cash and cash equivalents, but also RMB118 million in short-term borrowings.
The company also expected higher capital needs because new production lines at its wholly owned subsidiaries, Panzhihua Tianye Innovation Agricultural Technology Co., Ltd. and Hubei Tianye Nonggu Biotechnology Co., Ltd., were scheduled to begin production and operation in 2021, with uncertainty around commissioning and ramp-up.
Another use of proceeds was repayment of borrowings from China Post.
After the private placement, Nayuki held 4.44% of Tianye.
Tianye had a clear incentive to move quickly toward a listing. Under the investment terms for the private placement, the company committed to complete a qualified listing on the Shanghai Stock Exchange or Shenzhen Stock Exchange by December 31, 2024. If it failed to complete the listing within that period, it would be required to repurchase the private-placement shares.
The per-share repurchase price was set as:
Per-share repurchase price = 3.22 x (1 + investment capital cost x holding days / 365) - cash dividends per share already received by the investor before repurchase.
Tianye's main products are raw-material fruit juices, quick-frozen fruits and vegetables, and fresh fruit processed from tropical fruit and vegetable ingredients.
Its raw-material juice customers are mainly beverage manufacturers and milk-tea chain brands. Its quick-frozen fruit and vegetable customers are mainly food-processing companies with cold-chain delivery and processing capabilities, which can store, repack, and process the products before selling them to end users in bakery, foodservice, dairy, and other sectors.
1. Planting model: Tianye mainly uses a model of unified planting and sales with decentralized farmer management. Tropical fruits, especially passion fruit and dragon fruit, require relatively high planting investment and technical capability, making large-scale planting difficult for farmers constrained by capital and expertise. Tianye uses its funding and technical advantages to handle land leveling, seedling cultivation, and scaled planting. After planting, farmers manage assigned plots, including pruning, pesticide application, fertilization, and other daily work. Tianye provides machinery, fertilizer, pesticides, and technical guidance, then organizes harvesting and external sales once the fruit matures.
2. Procurement model: Tianye sources raw fruits and vegetables from its own bases, natural-person suppliers, and imports. It mainly purchases raw fruit from natural-person suppliers, who have certain planting areas, capital strength, sales channels, and stable relationships with partner growers, transport providers, and loading/unloading workers. Since 2015, Tianye has imported durian from processing companies in exporting countries and fruit import/export traders to develop products such as quick-frozen durian and freeze-dried durian.
3. Production model: Tianye follows a seasonal-production, year-round-sales approach, with production determined by sales. Its sales department prepares sales plans based on the annual business plan, estimated demand and pricing, customer quality requirements, and delivery timing. These plans are reviewed by the general manager's office and discussed with production, procurement, finance, and other departments before production plans are issued. In daily production, the production, quality-control, procurement, and finance departments jointly prepare monthly and weekly plans based on raw-material prices, capacity, and process flows, and manage scheduling and execution issues to meet cost-control, product-quality, and plan-completion requirements. Some quick-frozen fruit and vegetable production is outsourced.
4. Sales model: Tianye mainly sells directly. Its raw-material juice customers are mainly beverage manufacturers. Its quick-frozen fruit and vegetable customers are mainly food-processing companies with cold-chain delivery and processing capabilities, which store, repack, and process the products before selling them to bakery, foodservice, dairy, and other end users. Its fresh-fruit customers are mainly agricultural-product distribution service companies and natural persons.
Tianye listed on China's National Equities Exchange and Quotations, also known as the New Third Board, in February 2015 and entered the innovation tier. On May 8, 2015, it changed to market-making transfer, with a 16x PE and a market value of about RMB780 million.
In July 2019, Tianye announced the termination of listing tutoring. The announcement said Tianye and Hualong Securities had signed an IPO and A-share listing tutoring agreement in February 2018, submitted IPO tutoring filing materials to the Guangxi branch of the CSRC, and obtained the Guangxi regulator's IPO tutoring registration form on March 16, 2018.
After the latest fundraising, Tianye had stronger urgency to pursue a Shanghai or Shenzhen listing because of the special repurchase terms attached to the private placement.
Tianye's top-five customer changes show that it caught the rise of new-style tea drinks in 2020, with the key move being its relationship with Nayuki.
In 2019, Tianye's major customers were still beverage and food companies such as Nongfu Spring, Fresh Juice, and Coca-Cola. The fifth-ranked customer was CoCo.
By 2020, Nayuki had quickly become Tianye's second-largest customer. In the top-five customer list for 2021, the top four were all tea-drink brands: Nayuki, Chabaidao, Auntie Shanghai, and A Little Tea. Together, those four customers accounted for more than 50% of sales revenue.
As a supply-chain company, Tianye faced a common pattern: upstream customers may delay payment, while downstream operations require prepayments or inventory that ties up capital. When the business grows quickly, the company needs additional working capital to keep operations moving.
Inventory increased from 2019 to 2020.
Accounts receivable at the end of 2020 decreased by RMB8.049 million from the end of 2019, down 13.62%, mainly because 2020 sales revenue declined year on year.
Accounts receivable at the end of the first half of 2021 increased by RMB4.8354 million from the beginning of the period, up 9.47%, mainly because sales revenue grew rapidly in the first half of 2021.
Prepayments at the end of 2020 decreased by RMB582,700 from the end of 2019, down 27.3%, mainly due to lower prepayments to durian importers. Prepayments at the end of the first half of 2021 increased by RMB3.2025 million from the beginning of the period, up 206.39%, mainly because sales growth drove higher prepayments for raw materials and related needs.
Total liabilities at the end of 2020 decreased by RMB49.2781 million from the end of 2019, down 19.31%. The main reason was that non-current liabilities due within one year decreased 100% from the prior year-end, as Tianye Nonggu repaid on schedule an entrusted loan from Jingmen Qujialing Urban and Rural Construction Investment Co., Ltd. By the end of the first half of 2021, total liabilities had increased by RMB74.7998 million from the beginning of the period, up 36.32%, mainly due to increases in contract liabilities, payables for projects, and expense-related payables.
Net cash flow from operating activities was RMB66.01 million in 2019 and RMB47.8163 million in 2020. The 2020 figure decreased by RMB18.1936 million, down 27.56%, mainly because operating cash inflows rose slightly, but cash paid for goods and services increased by RMB46.7998 million year on year.
Net cash flow from operating activities was RMB2.0859 million in the first half of 2020 and RMB120 million in the first half of 2021. The first-half 2021 figure increased by RMB120 million, up 5,778.74%, mainly because cash received from selling goods and providing services increased by RMB140 million from the same period of the previous year.
Note: IPO, repurchase, listing-timeline, and forward-looking financial figures above are historical references from the January 6, 2022 source article.