"A New Beginning"
Today (February 2), Qingyan learned from the official website of the Beijing Stock Exchange that the 6th review meeting of the Listing Committee of the Beijing Stock Exchange in 2024 approved the registration application for the public offering of shares by Anhui Zhongcao Spice Co., Ltd. (hereinafter referred to as "Zhongcao Spice"). This also means that Zhongcao Fragrance may become the first listed company of fragrance and flavor in 2024.
▍Screenshot from the official website of the Beijing Stock Exchange
Revenue growth of less than 30%, change to listing criteria
According to public information, Zhongcao Fragrance was established in 2009 and mainly focuses on the research and development, production and sales of fragrance flavors. In 2017, Zhongcao Spice was listed on the National Equities Exchange and Quotations for Small and Medium-sized Enterprises, and entered the innovation layer in June 2021. In April 2022, Zhongcao Spice launched the listing counseling on the Beijing Stock Exchange, and in October of the same year, it issued the "Suggestive Announcement on the Board of Directors' Deliberation on the Proposal for Public Offering of Shares and Listing on the Beijing Stock Exchange", officially starting the listing process on the Beijing Stock Exchange.
From 2020 to the first half of 2023, the revenue of Zhongcao Spice was 105 million yuan, 150 million yuan, 189 million yuan, and 87 million yuan respectively, the net profit was 14.6305 million yuan, 23.0751 million yuan, 37.7125 million yuan, and 18.8767 million yuan, respectively, and the non-net profit attributable to the parent was 12.42 million yuan, 24.02 million yuan, and 33.78 million yuan, respectively. 15.64 million yuan, gross profit margin was 27.42%, 32.35%, 33.88% and 34.16% respectively.
It can be seen that the net profit growth rate of Zhongcao Spice in recent years has been more than 50%, and there will even be a substantial increase of 455.54% in 2020. However, the company has shown a downward trend in total revenue growth, with less than 30% growth in 2022. In the previous declaration, the listing criteria selected by Zhongcao Spice were "the expected market value is not less than 400 million yuan, the average operating income in the last two years is not less than 100 million yuan, and the growth rate of operating income in the last year is not less than 30%, and the net cash flow generated by operating activities in the last year is positive".
Judging from the 2022 performance, it is obvious that Zhongcao Spice no longer meets the listing criteria. It is also because of this that China Herb Spice chose to change the listing criteria, and the changed listing criteria are "the expected market value is not less than 200 million yuan, the net profit in the last two years is not less than 15 million yuan and the weighted average return on equity is not less than 8%, or the net profit in the last year is not less than 25 million yuan and the weighted average return on equity is not less than 8%".
According to the prospectus, the main business of Zhongcao Spice is concentrated in cooling agents, synthetic flavors and natural flavors, of which cooling agents are its main business sources, mainly including N,2,3-trimethyl-2-isopropylbutylamide (WS-23), N-ethyl-2-isopropyl-5-methylcyclohexanecarboxamide (WS-3), cooling agent WS-10, menthyl acetate and other cooling agent products, and related raw materials have been included in the "Catalogue of Used Cosmetic Raw Materials (2021 Edition)", which are widely used in washing, Oral cavity, smearing and other daily chemical fields.
In addition to cooling agents, the herb fragrance business also includes synthetic fragrances such as dibutyl ester and ethyl butyrate, as well as natural flavors such as orchid oil, garlic oil, ginger oil and red orange oil. Among them, ethyl butyrate can be used as a fragrance, solvent and extractant, while ginger oil and red orange oil can be used in daily chemical products, and spearmint oil is mainly used in toothpaste, mouthwash, etc.
However, the above two types of products do not account for a high proportion of the total revenue of Chinese herbs and spices. Judging from the data in the first half of 2023, 79.38% of the revenue of Zhongcao Spice comes from cooling agent products, and the proportion has been increasing year by year since 2021, synthetic fragrance products are the second largest category of products, accounting for 10.14% of total revenue, showing a downward trend year by year, while natural flavor products only account for 4.63%, but compared with 0.62% in 2020, there is a significant increase.
▍Intercepted from the prospectus of Chinese herbs
From 2020 to the first half of 2023, the sales amount of the top 5 customers of Zhongcao Spice accounted for 40.69%, 36.54%, 22.45% and 22.21% of the total sales, respectively.
Specifically, in addition to food enterprises, most of the customers of Zhongcao Spice are flavor and flavor traders, including international flavor and flavor giants Symrise and Givaudan. Among them, Givaudan is also the largest overseas sales customer of Chinese herbal spices.
▍Intercepted from the prospectus of Chinese herbs
With a market share of 30%, the company will continue to expand its production capacity
It is worth mentioning that as an industry with strong supporting characteristics and high correlation with other industries, the fragrance and flavor industry has developed rapidly in the past few decades. According to the prospectus of Chinese herbal spices, there are currently more than 7,000 kinds of spices in the world, including about 6,000 kinds of synthetic spices, about 500 kinds of natural spices, and as many as 10,000 kinds of flavors blended with various spices.
Correspondingly, the current mainland fragrance and flavor industry has also begun to transform and upgrade its industrial structure, from the pursuit of speed growth to high-quality growth. During the 13th Five-Year Plan period, the market size of the mainland fragrance and flavor industry accounted for about one-fifth of the global market, of which the international trade exceeded 4 billion US dollars, and the mainland has become one of the world's major fragrance suppliers and one of the most important markets in the global fragrance and flavor industry.
According to the data released by the China Fragrance and Flavor Cosmetics Industry Association, the market size of fragrance and flavor in mainland China has increased from 25.2 billion yuan in 2016 to 42.4 billion yuan in 2022. In addition, it is also proposed in the "14th Five-Year Development Plan for the Fragrance and Flavor Industry" that by 2025, the output of flavors in the mainland will reach 400,000 tons, the output of spices will reach 250,000 tons, and the main business income of the industry will reach 50 billion yuan. It can be said that there is still considerable room for development in the fragrance and flavor industry.
However, as the upstream supply chain, fragrance and flavor have high direct material costs. Moreover, the raw materials for the production of spices are mainly derived from spice plants or basic chemical products, which are susceptible to the influence of natural climate and unbalanced annual output, resulting in unstable supply and price of raw materials, and basic chemical products are also susceptible to factors such as crude oil price fluctuations, thereby affecting costs.
Zhongcao Spice also mentioned in the prospectus that direct materials account for a considerable proportion of the main business costs, accounting for 88.70%, 88.21%, 86.82% and 86.04% respectively from 2020 to the first half of 2023. This also makes the product cost of Chinese herb spices greatly affected by the direct material.
▍Intercepted from the prospectus of Chinese herbs
For example, the price of synthetic spices will rise from 80,000 yuan/ton to 120,000 yuan/ton in 2022, and drop to 79,300 yuan/ton in the first half of 2023, and the price of natural flavors will also fluctuate greatly, however, the price of cooling agent products has been relatively stable in recent years, and the selling price has remained at 311,400-335,900 yuan/ton.
▍Intercepted from the prospectus of Chinese herbs
Specific to the cooling agent, WS series cooling agent is the main product of Zhongcao spice, the raw material as an upgraded alternative to the traditional cooling agent menthol (also called menthol), with the cool taste of menthol, but the relative irritation is weaker, and not easy to volatile, high temperature resistance, no bitter taste, in the skin, oral cooling lasting for a long time, explosive, physical and chemical properties are better than menthol, this raw material characteristics also allow it to be used in oral care and many other products.
According to public information, from 2019 to 2022, the domestic demand for cooling agents such as WS-23 will grow by about 40%, and the domestic demand for cooling agents such as WS-23 will be about 1,346 tons in 2022. According to data from the Shanghai Food Additives and Ingredients Industry Association, WS series cooling agent products are expected to partially replace the menthol market in the near future.
According to the prospectus, in 2021 and 2022, the domestic market share of products such as WS-23 of Chinese herb spice will be about 30%, and it has become one of the main manufacturers of such products. Because of this, the "cooling agent" product is naturally the highlight of its subsequent expansion.
According to the prospectus, China Herb Spice intends to issue no more than 14.95 million RMB ordinary shares, accounting for 20.00% of the total share capital after issuance, after deducting the issuance costs, all of which will be used for the company's main business-related projects, namely the annual output of 2,600 tons of cooling agent and fragrance raw materials project (phase I), to use the raised funds of 149.5 million yuan, the total investment amount of the project will reach 257 million yuan. At present, the project has completed the EIA approval procedures.
▍Intercepted from the prospectus of Chinese herbs
Specifically, the project will produce a variety of products including nitriles, cooling agents, etc., of which 1,170 tons are nitrile products, which are also the main raw materials for cooling agent products, so 630 tons of them are for self-use, which can also further help Zhongcao spices break through the bottleneck of raw materials, break through the restrictions of the industrial chain, and enhance the large-scale production capacity of the whole industrial chain of the enterprise.
▍Intercepted from the prospectus of Chinese herbs
According to the prospectus, the main competitors of the cooling agent products produced by Zhongcao Spice in China are Yaxiang shares and Aipu shares. As far as the current public data is concerned, the production capacity of Zhongcao Spice in 2020 is significantly lower than that of Yaxiang Co., Ltd., but since then, the production capacity of Zhongcao Spice has increased significantly, and it has begun to catch up rapidly, and in 2021, it has basically caught up in terms of output.
▍Intercepted from the prospectus of Chinese herbs
In 2024, the tuyere of beauty raw materials is still there
It is worth mentioning that in addition to Zhongcao spices, there are two spice and flavor companies that are speeding up the pace of rushing to the capital market recently. According to public information, the synthetic fragrance company Green Biotech updated its prospectus in November last year and replied to the second round of inquiries of the Shenzhen Stock Exchange, while Wanxiang Technology, which failed to pass the review and failed to pass the Shenzhen Stock Exchange's Growth Enterprise Market, also restarted listing counseling at the end of last year.
In addition, there are 3 raw material companies that are also actively seeking listing, including Tron Biotech, Neo Health Medical and Xuankai Biotech. Among them, Chuangxin Medical just launched listing counseling in January this year, and Tron Biotech, which had suspended the review in 2021, also submitted a listing application to the Beijing Stock Exchange again last year, while Xuankai Biotech, which is mainly engaged in biological adjuvant products and biologics products, is in the inquiry stage.
In fact, as the efficacy and formula of cosmetics are more and more valued by consumers, the raw material side has gradually become the darling of capital. However, there is also an obvious bias in the main business of enterprises concerned by capital, Qingyan combed through 28 raw material financing cases in 2023 and found that the basic raw material enterprises favored by capital still account for a minority, the proportion of fragrance and flavor enterprises is 0, and most of the invested companies are mainly functional raw materials with relatively high R&D difficulty, and half of them are involved in the field of synthetic biology or recombinant collagen.
Taking five companies with a financing amount of more than 100 million yuan as an example, except for Chongqing Yuyan, which is mainly engaged in recombinant botulinum toxin type A, the rest are synthetic biology enterprises. For example, Baiyin Biotechnology, which received more than 100 million yuan in Pre A round of financing in January last year, uses synthetic biology technology to conduct research and development of innovative biomaterials, while Yuanyi Biology is based on the diversification of the synthetic biology industry, focusing on the application of pharmaceutical raw material distribution, medical beauty product ingredients, functional feed and plant protection raw materials, and biotechnology technology.
Of course, other categories of raw material companies are not without opportunities. Last year, Japan's nuclear wastewater discharge incident made Nissan raw materials once abandoned, many companies in order to avoid risks began to look for high-quality domestic raw materials as substitutes, some industry insiders have admitted to Qingyan: "Some Japanese raw materials are in very large demand, once abandoned, there will be a large number of market vacancies." And this is also seen as a major opportunity for domestic raw materials to overtake in corners.
Overall, there are still opportunities for raw materials this year, especially for raw material companies with new technologies and new materials. However, this does not mean that there is no room for development in other raw material application fields, as long as we can maintain product innovation and continue to produce high-quality, high-yield high-quality raw materials, we can create a more solid core competitiveness.