Haitian eyes second listing in Hong Kong, but may have to swallow lower valuation

China’s leading condiment maker is reportedly considering a Hong Kong IPO, boasting a history dating back over 300 years and portfolio including soy sauce, oyster sauce and vinegar

Key Takeaways:

• Haitian Flavoring is reportedly considering a Hong Kong IPO, boasting a stable business that shows its products may be relatively immune to China’s slowing economy
• The leading condiment maker’s China-listed A-shares trade at a P/E ratio of over 30 times, but it’s unlike to achieve such a high multiple in Hong Kong

By Bai Xinrui

Beijing’s recent plan to boost the economy has injected some much-needed secret sauce into Mainland and Hong Kong stock markets, fueling rallies for many long-suffering stocks. The IPO market has also perked up on strong trading debuts for companies like Midea (0300.HK; 000333.SZ), which last month made Hong Kong’s biggest new share float this year to complement its existing listing in Shenzhen.

Midea’s success may be attracting other A-share listed companies to try their hands at second listings in Hong Kong, which gives them better access to global investors. That group may include Foshan Haitian Flavoring and Food Co. Ltd. (603288.SH), China’s top condiment maker, which is reportedly considering such a listing, according to media reports.

Such an IPO could raise $1.5 billion or more, according to the reports, citing people familiar with the situation. Haitian would bring a long and flavorful history to Hong Kong investors, with roots that trace back to a historic sauce-producing house in Foshan from the Qing Dynasty more than 300 years ago. Later, Haitian Soy Sauce Factory was founded as a public-private joint venture 1955. Later still, the condiment maker’s sales passed the 1 billion yuan ($140 million) mark in 2001, setting the table for a Shanghai IPO in 2012. The company’s flavoring cabinet currently covers a range of products, including soy sauce, oyster sauce and cooking wine.

Traditional Chinese worked hard to afford the seven necessities of life, namely firewood, rice, oil, salt, soy sauce, vinegar and tea. Two of those, soy sauce and vinegar, have become staples in the modern Chinese seasoning cabinet and are Haitian’s biggest products. China’s broader condiment market was worth a hefty 592.3 billion yuan last year and is expected to reach 687.1 billion yuan in 2024. The market grew nearly 10% annually from 2014 to 2023.

China’s condiment market is quite diverse, including not only Haitian’s core liquid seasonings, but also others like salt, MSG and pickled vegetables, just to name a few. But unlike Haitian’s products, many of the others are on the decline. Demand for MSG has been falling as consumers look for healthier alternatives, while salt and pickled vegetables are also declining as consumers with growing income look for other choices. Unlike those, Haitian’s main products, soy sauce and oyster sauce, are currently coming out of a growth stage into a more mature phase, while its vinegar and cooking wine are still growing strongly.

Those trends are apparent in Haitian’s latest financial results. The company recorded 14.16 billion yuan in revenue in the first half of 2024, up 9% year-on-year, while its net profit rose 12% to 3.45 billion yuan. The revenue jump owed mainly to a low base effect in the year-ago period and more aggressive inventory replenishment.

Soy sauce was the company’s largest breadwinner in the second quarter, bringing in 3.18 billion yuan, up 3% year-on-year and accounting for 49.2% of the total. But the company’s other products, mainly vinegar and cooking wine, grew by a faster 22.5% to 1.08 billion yuan during the quarter.

Fragmented industry

Haitian’s steady growth shows there are still opportunities in the condiment market, especially due to a high degree of fragmentation where the top five companies take just 15.4% of the market. Despite its status as top dog, Haitian only accounts for 6% of the market. The second largest company, Lee Kum Kee, is just over half that size with 3.3%.

That leaves hundreds of small-and medium-sized manufacturers catering to tastes that vary widely from region to region. But rising costs and China’s economic slowdown of the past two years have hit many of those smaller companies disproportionately, creating opportunities for leading names like Haitian and Lee Kum Kee to act as consolidators through acquisitions.

At the same time, Haitian’s products still largely target the mass market with its relatively low prices. Its soy sauce typically costs about 10 yuan to 12 yuan per liter, far less than the 20 yuan charged by rival Qianhe Flavor Food (603027.SH), not to mention the 30 yuan per liter from Japan’s Kikkoman. Sensing a business opportunity, Haitian has been working to develop higher-end products that are typically more profitable.

Meanwhile, a new generation of compound condiments combining numerous ingredients also presents another big business opportunity for the industry. The shrinking size of Chinese families, combined with growing incomes and longer work hours, are combining to cook up new demand for such products aimed at people seeking to simplify meal preparation in their increasingly dwindling leisure time.

Compound condiments are a perfect match for such people, providing seasonings for consumers with limited time and who may have limited cooking experience. The compound condiment market in China was worth 203.2 billion yuan last year, even though its penetration rate was just about 20% – far less than rates of 65% to 70% in more mature markets like the U.S. and Japan. As China’s compound condiment market catches up with more mature peers, its value is expected to grow about 13.5% per year to reach 336.7 billion yuan in 2027.

Following in the footsteps of compound seasoning maker Yihai International (1579.HK), a spinoff of hotpot giant Haidilao, Haitian has also launched a variety of different types of more sophisticated products, including soybean paste, bibimbap sauce, hot pot soup base ingredients and other seasoning products.

High valuation

Analysts currently expect Haitian to turn profits of 6.25 billion yuan and 6.95 billion yuan in 2024 and 2025, respectively, up about 11% each year, according to Bloomberg data. That would give it forward price-to-earnings (P/E) ratios of 38 and 34 times for those two years, respectively.

But attaining such high multiples could be more difficult in Hong Kong, partly because Hong Kong-listed shares for such companies typically trade at a discount to their counterparts on China’s A-share markets in Shanghai and Shenzhen. Hong Kong-listed Yihai International is a case in point, trading at P/E ratios of only 15.3 times for this year and 13.7 for 2025, or less than half of Haitian’s A-shares.

That means that China’s leading condiment maker may have to adjust its taste for high valuations to more realistic levels to attract investors if and when it floats its shares in Hong Kong.

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