Wufangzhai Nears A-Share Listing After Selling 375 Million Zongzi in First Half 2021

This is an English adaptation of a FoodBud historical article originally published on January 26, 2022.

Wufangzhai, the century-old Chinese zongzi brand founded in 1921, entered 2022 as one of the first companies to pass the listing review process. The next step was choosing a listing date.

Its prospectus showed plans to raise RMB 1.056 billion in the A-share market. The proceeds were earmarked for a Phase III intelligent food workshop, a digital industry smart park, an R&D center and information-systems upgrade, and an upgrade of its Chengdu production base. Zhejiang Wufangzhai operated two production bases at the time: Jiaxing, where the company is headquartered, and Chengdu in Sichuan.

Control and Shareholding

As of the prospectus signing date, Li Jianping served as chairman of both the company and Wufangzhai Group, holding 20% of Wufangzhai Group. Li Haojia, a company director and chief audit officer, also held 20% of Wufangzhai Group. The two are father and son and together held 40%.

Four other major Wufangzhai Group shareholders issued confirmations that their 29% combined stake would vote in line with Li Jianping and Li Haojia at shareholder meetings: Li Zhengxin held 13%, Zhu Ziqiang 6%, Cao Guoliang 6%, and Hu Xiaobin 4%.

That meant Li Jianping and Li Haojia could effectively control voting rights corresponding to 69% of Wufangzhai Group. Through Wufangzhai Group, they indirectly controlled 50.06% of the issuer and were identified as the company’s actual controllers.

Before the offering, the shareholders with stakes above 5% were Wufangzhai Group at 40.36%, Xinghe Digital at 23.97%, and Yuanyang Decoration at 9.70%. After the offering, those three would remain the only shareholders above 5%, with stakes changing to 30.27%, 17.98%, and 7.28%, respectively.

Brand and Revenue Profile

Wufangzhai was founded in 1921 and has more than 100 years of history. It was among China’s first group of “China Time-Honored Brand” enterprises. Its zongzi-making technique was included by China’s Ministry of Culture in the third batch of the national intangible cultural heritage list in 2011.

Revenue in 2018, 2019, 2020, and the first half of 2021 was RMB 2.423 billion, RMB 2.507 billion, RMB 2.421 billion, and RMB 2.136 billion, respectively. Net profit attributable to parent-company shareholders over the same periods was RMB 97 million, RMB 163 million, RMB 142 million, and RMB 306 million.

Main-business revenue accounted for 93.56%, 94.74%, 95.96%, and 95.06% of total revenue in 2018, 2019, 2020, and the first half of 2021. The main business included zongzi, mooncakes, meal products, egg products, pastries, and other items. Other-business revenue was limited and mainly came from rental income and disposal income from investment properties.

Zongzi Remained the Core Product

Zongzi production and sales represented a high share of Wufangzhai’s revenue. In the first half of 2021, zongzi revenue reached RMB 1.707 billion, accounting for 84.06% of total revenue. In the prior three years, zongzi revenue was in the RMB 1.5 billion to RMB 1.6 billion range.

The article cited China’s zongzi market as having grown at a 10.53% compound annual rate in previous years, with expected compound annual growth of around 7% in the following years. It projected the market would reach RMB 10.291 billion by 2024, more than double the RMB 4.916 billion market size in 2015.

Wufangzhai sold 411 million, 408 million, and 366 million zongzi products in 2018, 2019, and 2020. In the first half of 2021 alone, it sold 375 million zongzi products, exceeding its full-year 2020 volume.

Regional Mix, Costs, and Margins

By region, Wufangzhai’s business was concentrated in East China. That region contributed 63.23%, 61.45%, 55.82%, and 54.67% of revenue in 2018, 2019, 2020, and the first half of 2021.

Operating costs were RMB 1.32 billion, RMB 1.37 billion, RMB 1.34 billion, and RMB 1.14 billion in 2018, 2019, 2020, and the first half of 2021. Main-business costs accounted for 90.35%, 92.46%, 94.34%, and 95.29% of total operating costs, with other-business costs remaining low.

In the first half of 2021, zongzi-series costs accounted for 84% of costs. Direct materials represented 79.4% of the zongzi-series cost base.

Gross margin was 45.24%, 45.43%, 44.57%, and 46.20% in 2018, 2019, 2020, and the first half of 2021. The prospectus noted that product gross margin could be affected by selling prices, raw-material costs, labor costs, and other factors.

Channel Model: Direct-Led, Distributor-Supported

Wufangzhai described its channel model as omni-channel, with direct sales as the primary channel and distribution as a supplement.

Direct-channel sales revenue was RMB 1.497 billion, RMB 1.522 billion, RMB 1.514 billion, and RMB 1.121 billion in 2018, 2019, 2020, and the first half of 2021. These represented 66.04%, 64.08%, 65.18%, and 55.24% of main-business revenue.

Distributor-channel revenue was RMB 770 million, RMB 850 million, RMB 810 million, and RMB 910 million over the same periods, accounting for 33.96%, 35.92%, 34.82%, and 44.76% of main-business revenue.

Note: IPO, fundraising, shareholding, market-growth projections, and 2024 market-size figures are historical figures and guidance from the 2022 source article.