Anjoy’s IPO advances in crowded field of food listings

A Hong Kong listing plan by the leading maker of frozen foods like fish balls has received a green light from China’s securities regulator

Key Takeaways:

• The Chinese securities regulator has formally registered Anjoy Foods’ plan to list in Hong Kong, which would complement its existing Shanghai listing
• The frozen foods maker’s revenue began to contract in the first quarter, and its gross margin is also notably lower than many other leading food companies

By Doug Young

Hong Kong-based investors could soon have another option to taste, as frozen food specialist Anjoy Foods Group Co. Ltd.’s (603345.SH) planned IPO moves one step closer to reality after receiving approval from China’s securities regulator.

The leading maker of frozen favorites like fish balls and steamed buns is in a race that has seen a growing number of companies with stocks traded on China’s domestic A-share markets in Shanghai and Shenzhen making second listings in Hong Kong. In that regard, the company is vying with leading soy sauce and condiment maker Haitian Flavouring (603288.SH) to become China’s first major food company with such a dual listing.

The recent rush of food stocks into Hong Kong is probably leaving investors a bit overwhelmed and trying to figure out which might offer the best returns. The list includes the likes of snack giants like Busy Ming, Three Squirrels and Liuliu, which are trying to join Weilong Delicious (9985.HK), whose shares are already listed in Hong Kong. Then there are other food stalwarts like rice seller Shiyue Daotian (9676.HK), and instant noodle giants Uni-President China (0220.HK) and Tingyi (0322.HK).

Founded in 2001, Anjoy is somewhat differentiated from its peers by its apparent appetite for acquisitions, which have helped to fuel its growth. The company’s portfolio includes a number of acquired brands, such as Honghu Temptation, Liuwu and Kung Fu Food. It made its latest acquisition just two months ago when it paid 445 million yuan ($62 million) for 70% of Ding Wei Tai, a maker of frozen seafood products like fish balls, the company revealed in first-quarter report filed with the Shanghai Stock Exchange in April.

While its acquisitiveness might be a positive, the company is also distinguished by its relatively low gross margin compared with its peers, and also by the relatively low valuation for its Shanghai-listed stock. Part of the lower margin probably owes to the company’s higher distribution costs, since its frozen products all require cold-chain delivery services.

Another turn-off for investors could be Anjoy’s revenue, which began to contract this year.

Anjoy filed its Hong Kong listing application in January, boasting Goldman Sachs and leading Chinese investment bank CICC as its underwriters, indicating the listing is likely to raise more than $100 million. All Chinese companies listing in Hong Kong must get approval from the China Securities Regulatory Commission (CSRC), and Anjoy received such permission when the regulator formally announced its registration of Anjoy’s application last Friday. According to the announcement, Anjoy plans to sell 59.5 million shares in the listing.

As we’ve already noted, Anjoy’s Shanghai-listed stock is relatively undervalued compared to its peers, commanding a price-to-earnings (P/E) ratio of just 16. That’s less than half the 36 for Haitian Flavouring’s Shanghai-listed stock, and also well behind the 30 for Hong Kong-listed Weilong Delicious, 21 for Uni-President China and 18 for Tingyi. That seems to show that investors aren’t so smitten with Anjoy’s story, most likely due to its relatively low margins.

Shrinking revenue

With all that big-picture background in mind, we’ll spend the second half of this review looking at Anjoy’s financials that show how the company is a leader in China’s large frozen food market, but is also a laggard in some key profitability metrics. Anjoy is China’s largest quick-frozen food company with 6.2% of the market, according to third-party market data in its January listing document.

The company’s top line revenue looked relatively solid when it filed for its IPO back in January, as it reported 7.7% growth during the first nine months of 2024. It finished out the year with similar growth, with the Shanghai-listed company reporting its revenue grew 7.7% for the year to 15.1 billion yuan from 14 billion yuan in 2023.

But then the revenue began to contract in the first quarter of this year, falling 4.1% to 3.6 billion yuan from 3.75 billion yuan a year earlier, according to its first-quarter report. The company didn’t provide any explanation for the sudden decline, though many companies reported similar weakness last year as Chinese consumer’s reined in their spending with the nation’s slowing economy.

The company breaks its product lines into three main areas, led by quick-frozen flavored and processed products like fish balls and pork sausage, which have accounted for about half of its revenue over the last three years. The second-largest category is quick-frozen prepared dishes like crayfish and egg dumplings, whose share of revenue has grown from 25% in 2022 to about 30% last year. The final category, quick-frozen flour and rice products like shumai and steamed buns, saw its share of Anjoy’s revenue pie shrink from about 20% in 2022 to 16.5% last year.

The overall shrinking revenue is a tad worrisome, though not unexpected in the current environment. But less appetizing is Anjoy’s relatively low gross margin of 23.3% last year. That was quite a bit lower than the 36% for Haitian in the first nine months of last year, and the roughly 33% for both Uni-President China and Tingyi. Part of that may owe to high distribution expenses, and it could also owe to difficulties integrating its numerous acquisitions. Whatever the cause, Anjoy will need to improve this important profitability metric if it wants to win over investors with a growing number of choices in food stocks.

Anjoy’s profit rose by a slight 0.5% last year to 1.48 billion yuan, though the growth rate was well behind its revenue growth. And like its revenue, the company’s profit also began to contract in the first quarter of this year, falling 10% to 395 million yuan, again, outpacing its rate of revenue decline.

At the end of the day, some investors may like Anjoy for its undisputed position as China’s leading frozen food company. But with so many other choices, all with higher margins and stronger valuations, investors might require quite a bit of convincing to park their money in Anjoy’s shopping cart.

To subscribe to Bamboo Works weekly free newsletter, click here