Packaging Supplier Behind Luckin Coffee and Heytea Filed for a Shenzhen IPO

This is an English adaptation of a FoodBud historical article originally published on May 25, 2022.

Foodservice packaging suppliers tied to major restaurant and beverage chains were drawing capital-market attention in China in 2022.

Jialian Technology, which initially built its business in overseas markets, had already gone public. Pizza Hut and Mixue Bingcheng were its second- and fourth-largest customers, and its post-listing market value was RMB 3.2 billion.

Nanwang Technology, closely connected with Wallace, was still on the listing track. Its major customers included KFC and Wallace. Huashi Food, the Wallace-related entity, indirectly controlled 27.74% of Nanwang Technology through multiple related parties and affiliated companies, making it the company’s second-largest shareholder.

Another packaging company, Hengxin Life, had submitted its prospectus and was preparing to list on the Shenzhen Stock Exchange. In its prospectus, Hengxin Life listed Nanwang Technology and Jialian Technology among its competitors.

Founded in October 1997, Hengxin Life develops, manufactures, and sells paper and plastic foodservice ware using raw materials including base paper, PLA resin, and conventional plastic resin.

Before 2019, Hengxin Life had established relationships with Staples, Amazon, Starbucks, McDonald’s, Dicos, Burger King, and Dairy Queen. In 2019, it added Luckin Coffee. In 2020, it added Heytea, Manner Coffee, Yihotang, and Gu Ming. In 2021, it added Mixue Bingcheng and CoCo Fresh Tea & Juice.

From 2019 to 2021, Hengxin Life generated revenue of RMB 540 million, RMB 420 million, and RMB 720 million, respectively. Net profit over the same period was RMB 70.266 million, RMB 24.877 million, and RMB 81.236 million.

Its 2020 net profit fell 65% to RMB 24.877 million, while 2021 net profit rose 227% to RMB 81.236 million. Net profit excluding non-recurring items was RMB 96.313 million, RMB 56.313 million, and RMB 76.264 million, respectively.

Core Business Revenue Approached RMB 700 Million in 2021

According to Hengxin Life’s prospectus, its 2021 revenue was close to RMB 700 million. Paper foodservice ware accounted for 57.5% of revenue, while plastic foodservice ware accounted for 42.5%.

Competitor figures for 2021 included:

• Jialian Technology: RMB 1.07 billion from plastic products, RMB 91.889 million from fully biodegradable material products, and RMB 61.927 million from paper products and other items.
• Nanwang Technology: RMB 660 million from eco-friendly paper bags and RMB 510 million from food packaging.

In 2021, Hengxin Life’s biodegradable foodservice ware revenue reached RMB 410 million, accounting for 59% of revenue.

From 2019 to 2021, Hengxin Life’s gross margin for its main business was 41.85%, 40.65%, and 36.17%, showing a downward trend. By segment, paper foodservice ware gross margin was 42.85%, 42.26%, and 36.07%, while plastic foodservice ware gross margin was 38.61%, 36.59%, and 36.30%.

By sales volume, Hengxin Life sold 1.88 billion paper cups, 1.22 billion cup lids, and 230 million plastic cups in 2021. PLA biodegradable plastic cups were the highest-priced product category; in 2021, plastic cups were priced at RMB 0.72 per unit.

Luckin Coffee and Heytea Were Major Customers

Hengxin Life began working with Luckin Coffee in 2019. By 2021, Luckin Coffee was Hengxin Life’s largest customer, with purchases of RMB 83.193 million, representing 11.5% of Hengxin Life’s revenue.

The company began working with Heytea in 2020. In 2021, Heytea was Hengxin Life’s third-largest customer, with purchases of RMB 27.33 million, representing 3.8% of revenue.

In 2021, Hengxin Life’s top five customers accounted for 25.9% of revenue.

Planned IPO Proceeds of RMB 890 Million

For the planned listing, Hengxin Life aimed to raise RMB 890 million. The proceeds were intended mainly for capacity expansion, smart manufacturing upgrade projects, R&D center investment, and working capital.

Control Was Held by One Family

According to the prospectus, Fan Yanru, Yan Deping, and Yan Shujing were Hengxin Life’s controlling shareholders and actual controllers. Fan Yanru and Yan Deping are married, and Yan Shujing is their daughter. Yan Deping served as Hengxin Life’s chairman and general manager, was the largest partner in Hefei Hengping and Hefei Hengyan, and served as executive partner of both entities. Yan Shujing served as a director of Hengxin Life.

Together, Fan Yanru, Yan Deping, and Yan Shujing controlled 88.52% of the company’s voting shares.

In November 2021, Wuxi Fosun subscribed for 1.5 million Hengxin Life shares at RMB 11.68 per share. The pricing was based on a valuation of about 10 times Hengxin Life’s expected 2021 net profit, implying a valuation of approximately RMB 890 million.

Note: IPO proceeds, valuation, and forward-looking listing plans are historical figures from the 2022 source article.