Two post-85s founded sunscreen clothing brands under the banana sprint "outdoor sunscreen first stock".
Recently, Banana Holdings Limited (hereinafter referred to as "Banana") submitted a prospectus to the Hong Kong Stock Exchange for listing on the Main Board, with CICC and Morgan Stanley acting as joint sponsors and China Renaissance Capital acting as the exclusive financial adviser.
According to the prospectus, from 2019 to 2021, the revenue under the banana was 385 million yuan, 794 million yuan and 2.407 billion yuan, respectively, and umbrellas, accessories and clothing contributed more than 75% of the revenue last year; and the adjusted net profit was 19.68 million yuan, 39.41 million yuan and 140 million yuan, respectively.
The umbrella category had revenue of 500 million yuan last year, and clothing revenue accounted for 30%.
In 2013, two post-85s Ma Long and Linze jointly founded the Banana Brand.
According to the prospectus, Ma Long has been planning to establish the Banana Group since August 2011, and Linze has been working with Ma Long to build bananas since August 2012. According to the recruitment website, Ma Long dropped out of the Hong Kong Polytechnic University in 2012 to start a business and successively created two major brands, WaveBetter and Banana Umbrella.
According to the prospectus, according to CSC Consulting, in terms of total retail sales and online retail sales in 2021, Banana is the largest sunscreen apparel brand in China, with a market share of 5% and 12.9% respectively.
The word banana is taken from "under the banana leaves", which means that the brand originated to meet the outdoor sun protection needs of young female consumers. At the beginning of its establishment in 2013, Banana launched its star product "Little Black Umbrella", aiming at the outdoor product market for young women. Until 2020, the revenue of the umbrella category still accounts for half of the revenue under the banana, and the proportion of umbrella revenue in 2019 is 86.9% of the total revenue.
In the three years, the gross profit margin of umbrellas increased by 9.4 percentage points to 59.5%. In 2021, the umbrella category alone will bring about 500 million yuan of revenue to the banana.
In fact, the price of umbrellas under bananas is several times higher than that of other brands. In the Tmall pocket umbrella hot list, the "flower umbrella" under the banana ranked first, priced at about 204 yuan, the third-ranked Zuodu product was priced at 69 yuan, and the fourth-ranked paradise umbrella product was priced at less than 50 yuan.
Income of products under bananas. Source: Prospectus under Banana
But Banana is trying to get rid of its dependence on the "little black umbrella".
Since 2017, Banana has further expanded its products to sunscreen clothing, warm clothing, etc. The revenue of the apparel category surpassed that of umbrellas for the first time in 2021, reaching 711 million yuan, accounting for 29.5% of the total revenue. Revenue from hats and other accessories is also gradually catching up with revenue from umbrellas. In 2021, the revenue of the hat category was about 450 million yuan; the revenue of other accessories reached 612 million yuan, accounting for 25.4% of the total revenue.
It is worth noting that the gross profit margin of other accessories such as hats and sunglasses is much higher than that of umbrellas. Gross margins in the hat category increased by 12% over three years to 67.3%, and sunglasses, masks, shawls and other accessories reached 61%.
In the official flagship store of Tmall under the banana, the best-selling sunscreen classic is priced at 209 yuan, the sunscreen hat "shell hat" is priced at 179 yuan, and the hot mask is priced at 79 yuan.
In addition, non-sunscreen products under bananas are also growing at a high speed. From 2019 to 2021, the revenue of non-sunscreen products under bananas was 2.8 million yuan, 76.5 million yuan and 496 million yuan respectively, of which 2021 increased by more than five times over the previous year.
Foundry costs exceed 40%, and R&D expenditure accounts for 3%
Similar to other new consumer enterprises, it is difficult to avoid the question of "heavy marketing over research and development".
The cost of sales, which accounts for more than 40% of the total revenue under the banana, is mainly the cost of sales, that is, the contract manufacturer under the banana purchases and processes the raw materials they purchase. From 2019 to 2021, the cost of sales was 192 million yuan, 338 million yuan and 986 million yuan, respectively.
Distribution and sales expenses ate 45.9% of banana revenue. Among them, advertising and marketing expenditure accounted for the majority, from 2019 to 2021, advertising and marketing expenditure was 36.91 million yuan, 119 million yuan and 586 million yuan respectively. In 2021, the advertising and marketing expenditure of 586 million yuan has exceeded the revenue scale of 500 million yuan of umbrellas that year. In addition, in 2021, the service fee handed over to the e-commerce platform by bananas will reach 227 million yuan, which means that the "pit fee" accounts for 9.4%, but the revenue from the e-commerce platform accounts for 12.6%.
In contrast, the proportion of R&D investment in the past three years has fallen to 3%. From 2019 to 2021, the R&D expenditure under the banana was 19.85 million yuan, 35.89 million yuan and 71.63 million yuan, accounting for 5.2%, 4.5% and 3.0% of the total revenue, respectively.
Consolidated income statement (partial) under the banana. Source: Prospectus under Banana
The high cost of foundry and distribution and sales is related to the business model under bananas.
According to the prospectus, bananas use the OEM model, that is, the foundry produces products according to the design and instructions of the enterprise. In terms of channels, Banana relies on content marketing to attract the attention of target customers and increase the sales of selected products, mainly relying on online self-operated channel sales, accounting for 83.6% of self-operated channel revenue in 2021.
It is worth noting that from 2019 to 2021, the annual loss attributable to the shareholders of the parent company was 23.2 million yuan, 77,000 yuan and 5.473 billion yuan, respectively, mainly due to the change in the fair value of the convertible redeemable preferred shares. The prospectus explains that the convertible preferred stock is designated as a financial liability measured at fair value and the change of which is included in the profit or loss of the current period. This amount increased as a result of the increase in the valuation of the company. However, after the company is listed, this part of the liability will automatically be converted into common stock. Adjusted net profit in accordance with non-IFRS, bananas recorded $19.68 million, $39.41 million and $136 million for 2019-2021, respectively.
Net profit (loss) for the next year. Source: Prospectus under Banana
For fundraising purposes, Banana said in the prospectus that the funds will be used to strengthen research and development capabilities; improve brand awareness, including promotions, advertising campaigns and marketing activities and marketing personnel recruitment; strengthen omni-channel sales and distribution networks; improve supply chain management; strengthen operational digitalization; and acquire targets such as outdoor shoes and clothing.
The prospectus discloses that before the completion of the IPO, founder and CEO Ma Long held 29.07% of the shares, his spouse Wang Yingying held 3.61%, co-founder and president Lin Ze held 27.91%, and his spouse Huang Chengcheng held 4.35%. Together, the founder and his spouse hold 64.94% of the company's shares. Banana also received investment from Sequoia Capital and Bee Qiao Capital, which held 19.37% and 6.96% of the equity respectively.