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Blue Shark Guide: There is 655 million yuan on the books, and 568 million yuan will be raised
Author | Chen Shifeng
Edit | Lu Xucheng
On July 8, the Shanghai Stock Exchange terminated the listing review of Shanghai Fubei Pet Products Co., Ltd. (hereinafter referred to as Fubei Pet) because the company withdrew its listing application on July 7.
Fubei Pet's IPO trip seems somewhat "perfunctory" - it submitted materials on March 4 this year, and the first round of inquiries came six days later, but the company has not responded to inquiries and has not updated its financial data for the whole year of 2022. From the submission of the materials to the withdrawal of the listing application, only four months elapsed.
It is worth mentioning that not long ago, the good pet has successfully passed the meeting and is about to land on A shares. After 2017, domestic counterparts such as Zhongpet shares, Petty shares, Yiyi shares, and Luce shares have already successfully "landed". Under the "cat and dog economy", China's pet food track has ushered in a number of listed companies.
As the "Foxconn" of China's pet food industry, why was the listing of Fubei Pet "suddenly suspended"? Does the failure of Fubei Pet's listing mean that China's pet food industry may usher in a downward cycle?
01
Founded for 18 years, twice folded IPO
According to the prospectus, Fubei Pet is a leading pet food supplier with comprehensive advantages in China, and is committed to providing healthy and safe high-quality pet food and scientific feeding solutions for pets. Its main business is the research and development, production and sales of pet food, and its main products mainly include dog food, cat food and other pet dry food staple foods.
Fubei Pet was founded in 2005 with a joint investment of 1 million yuan by Wang Yingchun and Shen Sanming. Two years later, Shen Sanming withdrew due to personal reasons, and Wang Chunlai and others received the corresponding shares as the main operators. In 2017, Forbei Pets introduced external investors. Subsequently, Yida Investment, Haifu Yangtze River, Zhongbi Fund (SS), Shengyuan Investment, Kaiheng Investment, Yida Venture Capital, Wuxi Red Earth, Gaoyou Red Earth, Shenzhen Venture Capital, etc. have "invested".
According to the prospectus, before the IPO, Wang Yingchun held 53.66% of Fubei's shares and was the actual controller of the company, in addition to his brother Wang Chunlai also holding 4.99%. But unfortunately, the IPO was unsuccessful.
Image source: Fubei Pet Prospectus
In fact, this is the second time that Fubei Pets has folded its IPO.
As early as 2019, Fubei Pet had planned to land on the capital market with the help of Zhongpet shares. According to the announcement of Zhongpet on July 17, 2019, it intends to acquire no less than 51% of the equity of Fubei Pet. However, on July 31 of the same year, the major asset restructuring of the two parties was terminated, which lasted less than half a month.
Zhongpet Co., Ltd. said in the announcement of termination of restructuring that due to the different interests of all parties to the transaction, some terms and details of the transaction could not be reached in the end, and it was difficult to reach a specific and feasible plan in a relatively short period of time to continue to promote asset restructuring.
In fact, Fubei Pet can "make money" more than Zhongpet shares. In 2021, the revenue of Zhongpet and Fubei Pet was 2.882 billion yuan and 978 million yuan, respectively, but the net profit was 116 million yuan and 224 million yuan, respectively. Fubei Pet, whose revenue scale is about 1/3 of Zhongpet shares, has a net profit of 100 million yuan higher than that of Zhongpet shares.
The higher profitability of Fubei Pet comes from more high-end products, and the core brand "Bile" launched in 2015 is one of the few mid-range brands in China. This brand and the technical advantages behind it have also driven the rapid growth of Fubei Pet's OEM/ODM business and achieved higher gross margins.
However, the main business of Fubei Pet is still "OEM". According to the prospectus, from 2019 to the first half of 2022, the revenue of Fubei Pet's self-owned brand business accounted for 44.15%, 42.46%, 39.09% and 38.47% respectively; The ODM/OEM business accounted for 55.85%, 57.54%, 60.91% and 61.53% respectively. The proportion of self-owned brand business is gradually declining, and the proportion of OEM business is increasing, Fubei Pet is more and more like a foundry, and the company's size is relatively large in the industry, so it is also named "Foxconn in the pet industry".
02
Why did "Foxconn in the pet industry" terminate its IPO?
From 2019 to the first half of 2022, the operating income of Fubei Pet was 405 million yuan, 664 million yuan, 978 million yuan and 524.9 million yuan, respectively, and the net profit in the same period was 66 million yuan, 140 million yuan, 224 million yuan and 96 million yuan, respectively. Why is it difficult for Fubei Pets, which have a net profit margin of more than 20%, to go public?
Image source: Fubei Pet Prospectus
1. The reasonableness of fundraising is questioned
In this IPO, Fubei Pet intends to raise 568 million yuan. Among them, 243 million yuan will be used for Xuancheng Fubei pet food expansion project, 220 million yuan will be used for the construction project of intelligent warehousing and distribution center, 54.41 million yuan will be used for marketing and management information construction project, and 50.65 million yuan will be used for the construction project of R&D center.
It seems that Fubei Pet is "eager" to expand its production capacity, and the capacity data also confirms this from the side: from 2019 to the first half of 2022, the capacity utilization rate of Fubei Pet was 89.41%, 112.34%, 111.00% and 104.33%, respectively, and the production capacity was overloaded for three consecutive years.
But in fact, Fubei Pets is not short of money. From 2019 to the first half of 2022, the monetary funds of Fubei Pet were 107 million yuan, 517 million yuan, 530 million yuan and 655 million yuan, accounting for 22.67%, 88.31%, 80.62% and 83.50% of the current current assets, respectively, and mainly bank deposits. At the same time, Fubei Pet has no long-term borrowing, and the asset-liability ratio is also very low. (As of the end of the first half of 2022, the gearing ratio was only 16.6%). ）
An economist believes that Fubei Pet has had money for more than three years instead of expanding production capacity, but chooses the outsourcing model, and now wants to expand production through fundraising, and the rationality of fundraising is debatable.
2. Food safety issues
On the black cat complaint platform, there are many complaints about Fubei Pet's brand food. Taking its Bile Pet Food as an example, a number of consumers complained that after eating food, diarrhea and other abnormal phenomena occurred after pets, one of them said that Bile Pet Food actually sent cat strips full of black mold to himself, and found that there was no seal when receiving the goods.
In this regard, Fubei Pet also frankly said in the prospectus that if the company's product quality control capabilities cannot adapt to the continuous growth of business scale, quality management work flaws and other quality problems lead to product quality problems, which may adversely affect the company's brand reputation and the sales and promotion of the company's products. Therefore, the company has potential business risks due to errors in product quality management.
3. The gross profit margin has decreased for three consecutive years
According to the prospectus, the gross profit margin of Fubei Pet's main business fluctuated and declined. From 2019 to the first half of 2022, the gross profit margins of Fubei Pet's main business were 42.85%, 42.14%, 39.45% and 36.81%, respectively. In this regard, Fubei Pet said that if the price of the main raw materials required by the company rises, the company will face the pressure of rising raw material costs. At the same time, employee salaries have generally increased, and companies are also facing pressure on rising labor costs. The increase in the cost of the company's products will lead to a decline in gross margin, and the company faces the risk of a decline in gross margin.
In addition, compared with peers, Fubei Pet also has an urgent problem to solve: the proportion of foundry is high and its own brand is weak.
Image source: Fubei Pet Prospectus
03
The "end" of pet food OEM?
The pet food industry chain can be roughly divided into three links: raw materials, manufacturing, brand and channel, of which the brand has higher added value and is the link with the highest profit margin and barriers in the pet food industry. Foundries naturally have the ability to create a matrix of high-quality and inexpensive products, and have the foundation to be welcomed by the end market.
Most of the top domestic pet food companies were engaged in OEM/ODM business in the early stage and started with OEM. Moreover, because the domestic pet market is not yet mature, the products are basically export-oriented, and the export methods are mostly sample processing, mainly exported to European and American countries with relatively wealthy lives. Zhongpet shares, good pets, etc. have all risen from this.
However, there are also some companies that have focused on the domestic market from the beginning, such as Fubei Pets. With the rise of the domestic pet consumer market, Fubei Pets has also seized a wave of development dividends. According to Euromonitor statistics, from 2008 to 2017, the pet food industry in mainland China showed explosive growth, and the compound growth rate of pet food market size exceeded 30%, becoming one of the fastest growing regions in the global pet food market.
According to the prospectus of Fubei Pet, with advanced production technology, good product quality and high market awareness, it has established stable cooperative relations with many well-known domestic pet brands such as NetEase Yanxuan, Douchai, Pat and other customers. In the past three and a half years, NetEase Yanxuan has been the largest customer of Fubei Pet, and in the first half of 2022, NetEase Yanxuan contributed 30.42% of the current ODM/OEM revenue to Fubei Pet.
Image source: Fubei Pet Prospectus
In fact, with the rapid development of e-commerce platforms, domestic pet food brands have ushered in a huge traffic dividend, and they have been able to bypass distributors and retailers and directly face consumers. Among them, the "OEM + marketing" model is an important means for many domestic brands to enter the market, which has also driven the rapid development of Fubei Pet ODM/OEM business.
However, for pet food brands, the OEM model has the risk of "overturning". In recent years, in the pet food industry, problems such as stealing concepts, false publicity, and questionable ingredients have been common. Failure to deliver products on time, quality not up to standard, and storage periods that do not reach the agreed effective period also seriously threaten brand credibility.
Therefore, many pet food brands have begun to attach importance to self-built factories, such as Xiaopei's pet fresh food brand Food Chain Brand built its own factory in Shanghai at the beginning of its establishment, and Gao Yejia also invested most of the new round of financing into the construction of its own factory... This may affect the performance of foundries such as Forbei Pet to some extent.
ODM/OEM has always been the main business of Fubei Pet, accounting for more than 60%. Compared with domestic counterparts, Fubei Pet's own brand is weak. According to the sales data of the 2022 Double Eleven Day cat platform, the self-owned brand "Mafudy" under Beobao Pet ranks in the top five market shares of "full-price dog staple food" and "cat snacks", and the "naughty" under Zhongpet Co., Ltd. is listed in the TOP5 list of "cat snacks" category. In the Double 11 "big test", Fubei Pet did not have its own brand on the list.
It is worth noting that the growth rate of China's pet food track is also slowing down year by year. According to Euromonitor's statistics, from 2019 to 2021, the growth rate of the mainland pet food market was 25.95%, 19.78% and 13.07%, respectively. In this situation, what will happen to Fubei Pets, which is overly dependent on ODM/OEM business?
*This article is the original of Blue Shark Consumption, written by Chen Shifeng. Welcome to add Blue Shark Consumption Chief Communication Officer (WX: L15811243757), follow the public number: Blue Shark Consumption (ID: lanshaxiaofei), in-depth research on the consumer industry, record and accompany the growth of new brands, welcome to join the Blue Shark Communication Group.
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