#FMCG Eight Talks##Consumption##Pu'er Tea##Tea#"The first share of Pu'er tea" is here. On December 22, Pu'er Lancang Ancient Tea Co., Ltd. (hereinafter referred to as "Lancang Ancient Tea") was officially listed on the main board of the Hong Kong Stock Exchange, with an opening price of HK$10.7 per share and 21 million shares on offer. As of the closing price of HK$8.7 per share, a decrease of 18.692%, the market capitalization of the Hong Kong stock market was HK$183 million.
According to the data, Lancang Ancient Tea's products are mainly Pu'er tea, including black tea, white tea, and flavored tea, and it has three major product lines: 1966, Tea Mama, and Yanleng. The proceeds from the listing of Lancang Ancient Tea after deducting the issuance expenses will be used to establish a modern logistics and warehousing center and improve the existing production workshop, establish sales channels, brand building and product marketing, make strategic investments and acquisitions in the tea industry, upgrade information technology infrastructure, and strengthen R&D capabilities.
The road to the market of Lancang ancient tea has been quite bumpy. Before hitting the Hong Kong stock IPO, Lancang Ancient Tea had intended to be listed on the A-share market. In July 2020, the official website of the China Securities Regulatory Commission released the prospectus of Lancang Ancient Tea, but on the eve of the meeting, Lancang Ancient Tea withdrew its application materials. After that, Lancang Ancient Tea began to move to the Hong Kong stock market, and submitted its statements to the Hong Kong Stock Exchange twice in May 2022 and February 2023. In August 2023, Lancang Ancient Tea submitted its form to the Hong Kong Stock Exchange for the third time and passed the hearing. Today, Lancang Ancient Tea has finally successfully rang the bell on the Hong Kong Stock Exchange and become the "first share of Pu'er tea". However, the listing is broken, and the life of Lancang ancient tea does not seem to be as good as imagined.
A reporter from Beijing Business Daily noticed that at present, Lancang ancient tea has problems such as profitability under pressure and inventory continues to soar.
Tea is a high-margin product and has become a consensus in the industry. According to the available data, the gross profit margin of Lancang Ancient Tea is not low, and the gross profit margin of its high-end classic product line 1966 ripe Pu'er tea is as high as 82.4%. However, it is worth noting that in recent years, the gross profit margin of Lancang ancient tea has been declining. According to the prospectus, from 2020 to the end of June 2023, the gross profit margin of Lancang ancient tea was 70.4%, 65.9%, 65.9%, and 60.3% respectively, which was in a downward trend.
At the same time, the net profit of Lancang Ancient Tea has also been declining, and from 2020 to the end of June 2023, its net profit attributable to the parent company was 123 million yuan, 131 million yuan, 72.21 million yuan, and 24.37 million yuan respectively.
While the performance is declining year by year, Lancang Ancient Tea is also facing the risk of high inventory. During the Reporting Period, the inventory of Lancang Ancient Tea reached RMB470 million, RMB636 million, RMB784 million and RMB835 million respectively, and the inventory turnover days were 1,345 days, 1,061 days, 1,641 days and 1,588 days respectively. In the eyes of the industry, high inventories will occupy corporate funds and exacerbate financial pressure. The high size of the inventory balance increases the capital occupation and reduces the asset turnover capacity, which will adversely affect the company's financial position.
As for the high inventory, Lancang Ancient Tea explained in the prospectus that under the standard storage conditions, Pu'er tea is suitable for long-term storage, and the appropriate inventory scale is conducive to reducing the risk caused by natural climate change, realizing effective control of raw material procurement costs, and maintaining the initiative and flexibility of production and operation. However, Lancang Ancient Tea also admits that "given the high inventory level and the number of inventory turnover days, our business needs a lot of working capital. If the Company's inventory levels rise significantly in the future, it could have a material adverse effect on its financial position and cash flow."
Zhu Danpeng, an analyst of China's food industry, said that China's tea industry has now entered the 2.0 era of standardization, specialization, branding, capitalization and scale. Lancang Ancient Tea has been seeking A-share listing, but the results are not satisfactory, Hong Kong stock listing can make Lancang Ancient Tea relatively easy to seek capital empowerment and large-scale development, but on the whole, the listing will not play a decisive role in the development of Lancang Ancient Tea.
Zhu Danpeng believes that the branding and growth of Lancang ancient tea in the future need to be improved. In the future, Lancang Ancient Tea should focus on the innovation of quality and food safety scenarios, the expansion of channels, the upgrading of the service system, and the strengthening of customer stickiness in order to achieve sustainable development.
Regarding the above questions, a reporter from Beijing Business Daily sent an interview letter to the official email address of the Lancang Ancient Tea Investor Relations Team, but did not receive a reply as of press time.
Beijing Business Daily reporter | Guo Xiujuan Zhang Han
Image source: Lancang Ancient Tea official website
Edited by Topol