Juewei Added RMB 52 Million to Lujiangnan and RMB 125 Million to Shengxiangting in H1 2022

This is an English adaptation of a FoodBud historical article originally published on September 3, 2022.

FoodBud reviewed the first-half 2022 financial disclosures of China’s three major duck-neck and marinated-snack chains: Juewei, Zhou Hei Ya and Huangshanghuang. Juewei remained far ahead by store count, with nearly 15,000 mainland China locations.

H1 2022 performance

Juewei reported first-half revenue of RMB 3.336 billion, up 6.11% year on year. Net profit attributable to shareholders was RMB 98.5927 million, down 80% year on year.

Zhou Hei Ya reported revenue of RMB 1.181 billion, down 18.7%, with net profit attributable to shareholders of RMB 18.377 million, down 92%.

Huangshanghuang reported revenue of RMB 1.182 billion, down 15.98%, with net profit attributable to shareholders of RMB 79.9155 million, down 46.7%.

Juewei’s other main-business revenue reached RMB 330 million in the first half. This mainly came from Juepei Logistics and supply-chain operations.

All three companies faced pressure from higher raw-material and energy costs. Juewei also continued subsidizing franchisees, which contributed to the sharp decline in net profit.

Store networks and channel shifts

As of the end of June 2022, Juewei Foods had 14,921 mainland China stores, excluding Hong Kong, Macao, Taiwan and overseas markets. That was a net increase of 1,207 stores from the start of the year.

Zhou Hei Ya was accelerating franchised-store expansion, with a particular emphasis on community stores. By the end of H1 2022, it had 3,160 stores nationwide: 1,342 self-operated stores and 1,818 franchised stores.

Under normalized pandemic conditions, Zhou Hei Ya upgraded its “small and beautiful” store model and expanded in community and lower-tier markets. Its community-store count rose by more than 300 to 561, accounting for over 95% of its first-half net store additions.

Zhou Hei Ya had 500 franchisees operating more than 1,800 franchised stores, meaning each franchisee operated more than three stores on average.

Zhou Hei Ya’s delivery business was a bright spot. In H1 2022, delivery contributed RMB 154 million, raising its share of self-operated store revenue from 20.3% in the same period of the prior year to 26.5%.

The company was also optimizing near-field retail by joining platforms including Meituan Youxuan, Pupu Supermarket and Hema Jishi. Its community fresh-food channel covered more than 170 cities nationwide and over 4,000 front warehouses.

On product expansion, Zhou Hei Ya continued extending beyond its core duck products, including crayfish. It sold 13,800 tonnes of products in the first half. Revenue from crayfish balls and other products reached RMB 236 million, up 32.82% year on year.

Juewei’s investment activity

Juewei remained active in investments during the first half. By the end of June 2022, its long-term equity investments totaled RMB 2.33 billion.

According to Juewei’s disclosures, its wholly owned investment arm Wangju Capital held 16.92% of Hefu Noodle. In August 2022, Wangju Capital fully exited its Hefu Noodle stake. In the first half, Wangju Capital also fully exited its stake in Zhaimen.

In H1 2022, Wangju Capital invested in Jiangsu Manguan, Lujiangnan, Shengxiangting, Fresh Life and another fund.

For Lujiangnan, Wangju Capital added RMB 52 million in the first half, raising its stake to 15.2%. The deal was still based on a RMB 1 billion valuation. Including Wangju Capital and funds related to Juewei’s own system, Juewei’s combined holding in Lujiangnan reached 29%.

Juewei and Lujiangnan had related-party transactions of RMB 56.495 million in 2021 and RMB 17.52 million in H1 2022.

FoodBud’s view was that Juewei’s investments could generate value in two ways: first through post-investment support and eventual exits, whether via IPO or other routes; and second through supply-chain income. The portfolio relationships involved substantial related-party transactions, including goods sales as well as logistics, warehousing and delivery services.

Juewei also added RMB 125 million to Shengxiangting in the first half. Wangju Capital’s stake in Shengxiangting was 10%, implying an entry valuation of RMB 1.25 billion.

After Wangju Capital’s investment, Juewei’s Wangju Capital plus related funds held 41% of Shengxiangting. Tencent held 10%. FoodBud argued that Tencent and Juewei were likely acting in concert, giving Juewei significant influence over Shengxiangting.

At that stage, Juewei had not achieved actual control of Shengxiangting, so it did not need to consolidate Shengxiangting in its financial statements. FoodBud noted that consolidation could be considered later if the asset matured.

Wangju Capital also increased its investment in Fresh Life by RMB 4.85 million, for a 0.1% stake. That implied a RMB 4.85 billion valuation. FoodBud described the investment as mutually beneficial because Juewei was a Fresh Life customer, and stated that given Fresh Life’s scale, an eventual listing was likely, with timing the main question.

Note: all investment, valuation, IPO and forward-looking figures above are historical, from the article’s September 3, 2022 context.