The "sweet rich" behind Yuanqi Forest, Xicha, etc.

Text/Forbes China

On February 10, the world's largest enterprise in the erythritol industry, Ternary Biologics (301206.SZ), landed on the Science and Technology Innovation Board, and the concept of zero sugar once again entered a highlight moment.

The issue price of Sanyuan Bio was 109.3 yuan per share, and the price-to-earnings ratio was 63.39 times. In early trading, the stock price touched 146 yuan / share, as of 11:00 press release, 128.44 yuan / share, up 17.66%.

Nie Zaijian, 71 years old this year, is the actual controller of Sanyuan Biotech, and his shareholding ratio after the issuance is 45.93%, and his stock market value has helped him become one of the richest people.

Founded in 2007, Sanyuan Biotech is a professional manufacturer of erythritol in China who began to industrialize production earlier, and has overcome the process problems of strain breeding, formula optimization, fermentation control, crystallization extraction and other links, and gradually grown into one of the leaders in the global erythritol industry. According to Sullivan research data, in 2019, the company's erythritol production accounted for 54.90% of the total domestic erythritol production and 32.94% of the global total output, making it the largest enterprise in the global erythritol industry.

In December 2015, Sanyuan Bio was listed on the SME Share Transfer System, and the stock code was 834971.

Giants who are "raised" by the consumption of sugar control concepts such as Yuanqi Forest

In recent years, domestic consumers have increased their awareness of sugar reduction and sugar control, which has led to the rapid development of the sugar-free beverage industry.

Erythritol is a white, shiny powder or crystal, with low hygroscopic properties and moderate sweetness, which can be melted at 122 °C to form a colorless, non-viscous liquid.

Erythritol is the fastest growing sugar substitute product in the current sugar-free development of the food and beverage industry at home and abroad, with zero sugar, zero calorie, natural health and many other advantages, and the market development prospects are broad.

In addition, sugar-free bubble drinks represented by Yuanqi Forest occupy an important position in the beverage market. The Chinese beverage market, which has been competing with foreign brands for 40 years, has been ripened by the sugar-free concept. Yuanqi Forest, a cutting-edge brand that has been localized into an idea of global selection, has successfully bypassed the dominant categories of giants and torn a gap in the soft drink Red Sea market.

Sugar-free sparkling beverages represented by Yuanqi Forest are popular with consumers and quickly occupy an important position in the beverage market. Image source: Visual China

New and old brands work together, Coca-Cola, Nongfu Spring, Unity, Master Kang, Wang Laoji, Xicha and so on to follow up the launch of sugar-free drinks. In addition to sparkling water, the products also cover soy milk, lactic acid bacteria, hawthorn drinks and other fields.

Nie Zaijian, chairman of Sanyuan Bio, told the media about the supply and demand scene of erythritol in the past two years and summed up three words: too hot.

The prospectus attributes the growth to the fact that, benefiting from the extensive improvement of domestic consumers' sugar reduction, sugar control awareness and the rapid development of the domestic sugar-free beverage industry driven by this, the sugar-free sparkling beverage represented by Yuanqi Forest is welcomed by consumers and quickly occupies an important position in the beverage market, and erythritol has become a sweetener for many sugar-free beverages with the advantages of "natural" and "zero calorie", and the domestic erythritol market demand continues to be strong, the product is in short supply, and the product price is growing rapidly; followed by the company's increase in production and efficiency. Capacity utilization and production and marketing rates are maintained at high levels.

In 2021, Yuanqi Forest has become the company's largest customer, and well-known enterprises such as Nongfu Spring, Coca-Cola, Xicha, Imabalang, Dali Group, and Unification have also become important customers of the company, providing sufficient impetus for the growth of the company's operating income.

In addition to covering the domestic and Asian markets, the company's erythritol and compound sugar products are also sold to many regions around the world, such as the Americas, Europe, Africa, and Oceania. Has been with The Sha luoya, the United States THI, the United States ADM, Yuanqi Forest, Coca-Cola, Pepsi Cola, Nongfu Spring, Unity, Immalang, Hankou Second Factory, Perfect China, Southern Black Sesame Paste and other well-known customers to establish cooperative relations, the company's products in addition to directly applied to the above enterprise brands, but also through the distributor to Merisant, Unilever, Master Kong, Danone, HALO TOP, Truvia and many other well-known enterprises.

Still in demand for blowouts

According to Sullivan research data, China's erythritol production increased from 18,000 tons in 2015 to 51,000 tons in 2019, with an average annual compound growth rate of about 30%, and the share of erythritol output in the total output value of the domestic sweetener market increased from 4.0% in 2015 to 6.4% in 2019.

Erythritol business is the main income of Ternary Biologics, from 2018 to 2021, the proportion of erythritol revenue to operating income was 84.65%, 59.87%, 78.80% and 91.48%, respectively, and the proportion of erythritol gross profit in comprehensive gross profit was 84.67%, 57.06%, 78.59% and 90.62%, respectively.

Nie Zaijian has publicly stated that the annual production capacity of ternary biological erythritol has increased from no more than 10,000 tons at the end of 2017 to 85,000 tons at the end of June 2021.

Sanyuan Bio expects net profit in 2021 to be 493 million yuan to 541 million yuan, an increase of 111.96% to 132.63% from the previous year.

There are also rough estimates that the annual domestic sucrose consumption exceeds 40 million tons, and the conservative estimate of sugar substitute products accounts for about 1%, reaching 400,000-500,000 tons. In the future, small packets of erythritol will enter the family table, and the annual consumption will exceed 2 million tons of MSG market.

At present, the global erythritol industry production center in China. In addition to Ternary Biologics, China's major manufacturers include Bowling Treasure and Zhucheng Dongxiao, which were established in 1997 and 2004 respectively. As the original manufacturers expand their production capacity and attract new investors to intervene, this will make the market competition in the erythritol industry more intense.

Bowling, which has already been listed, is also one of the suppliers of Yuanqi Forest erythritol and is also a major competitor of Ternary Biotech.

In the online roadshow, Nie Zaijian, chairman of Sanyuan Biologics, said that according to public information, listed companies Bowling Bao, Fengyuan Pharmaceutical and Huakang disclosed part of the erythritol production capacity. Judging from the information disclosed by Fengyuan Pharmaceutical, new enterprises need to have the corresponding personnel, technology, qualifications and other conditions to enter the erythritol market, and it generally takes 2-3 years from design to stable supply.

Sanyuan Bio also mentioned in the prospectus that there is a risk of single product structure. Although the company gradually launched compound sugar products in response to market demand during the reporting period, the company's product structure is still dominated by erythritol. If there is a significant fluctuation in demand or supply in the erythritol industry, it may adversely affect the company's operating results.

Shandong adds billionaires again

Born in 1951, the 71-year-old Nie Zaijian is the actual controller of Sanyuan Biotech, and his shareholding ratio after the issuance has reached 45.93%, and his stock market value has helped him to become one of the richest.

Nie Zaizeng revealed in an interview with China's Shandong Network that he joined the work in 1970, worked at the radio station for 7 years, and went to the factory in 1980 to work as a maintenance worker, working for a full 18 years, until 1998, during which he worked in all the positions in the factory.

In 1998, Nie Zaijian and a friend jointly established a printing and dyeing factory, and then opened a three-yuan home textile, when it was realized that the home textile printing and dyeing industry was already in a state of oversupply, in 2007 it entered the food additive industry. After 15 years of development, Ternary Bio has become the world's largest erythritol production enterprise.

Nie Zaijian and his family also control innovative spinning and electricity, Qunyi dyeing and finishing, and sanyuan home textile enterprises.