Haitian looks for new financial flavor in Hong Kong IPO

China’s condiment king and leading soy sauce brand plans to use proceeds from the listing to fund its bid to bring its flavors to the world
Key Takeaways:
- Haitian has filed to list in Hong Kong, reporting its profit grew 11.2% to 4.82 billion yuan in the first three quarters of last year
- The leading soy sauce maker has distributed more than 26 billion yuan in dividends over the past 10 years, with an annualized dividend payout rate exceeding 50%
By Lee Shih Ta
It may cost just a dollar or two per bottle, but soy sauce is big business in China – possibly bigger than oil. Using soybeans to make sauce dates back around 2,000 years to the Han Dynasty, according to historical records. The seasoning has also enjoyed a permanent place at the table of Chinese households for hundreds or even thousands of years.
Leading Chinese condiment company Foshan Haitian Flavouring and Food Co. Ltd. (603288.SH) is hoping foreign investors will develop a taste for its stock as well, filing earlier this month for a Hong Kong IPO. Its A-list of underwriters, led by CICC, Goldman Sachs and Morgan Stanley, hints at big fundraising hopes, as earlier media reports said it was planning to raise a saucy $2 billion.
Like its signature sauce, Haitian has quite a bit of history, dating back over 300 years to the Foshan Sauce Garden in South China’s Guangdong province during the Qing Dynasty. The company set up its public-private Haitian Soy Sauce Factory in 1955 and went public in Shanghai in 2012 with a sauce cabinet that includes soy and oyster sauces, as well as other flavorings.
The company is the clear leader in the Chinese condiment industry and ranks among the top five globally, according to third-party market data in Haitian’s listing document. It ranks No. 1 for soy sauce in both China and globally, with 12.6% market share in China, more than three times its second closest competitor.
Big dividends
Like many other consumer companies, Haitian experienced some turbulence during the pandemic but has more recently returned to more stable growth. Its revenue rose 9.4% year-on-year to 20.4 billion yuan ($2.62 billion) in the nine months through last September, while its profit grew by a slightly faster 11.2% to 4.82 billion yuan over that time.
Its net margin has ranged between 23% and 24.2% over the last three years, surpassing the top 10 global condiment companies for that period. The company has also been relatively generous with its large profits. As of 2023, it had distributed over 26 billion yuan in dividends over the past decade, with an average annual payout ratio exceeding 50%.
Haitian’s Shanghai-listed shares peaked in 2021 at over 126 yuan, lifting its market capitalization to more than 700 billion yuan – at one point beating out energy giant PetroChina, showing that soy sauce can really be more valuable than oil in some cases.
But as the condiments market becomes saturated, it’s becoming increasingly hard to gain market share. Despite its industry-leading status, even Haitian started to show signs of slowing during the pandemic. Its growth fell to single digits for the first time in 2021, dipping to 9.71% on annual revenue of 25 billion yuan. The growth rate then slumped to just 2.42% in 2022, as its net profit contracted 7.09% for the first time since its IPO.
The situation continued to deteriorate in 2023 as its revenue fell 4.1% to 24.56 billion yuan and its profit declined by 9.2% to 5.63 billion yuan – the first time both figures fell in a single year. Pandemic impact aside, rising commodity prices have also eroded Haitian’s profits.
Struggling stock
The company has also suffered from other misfortunes. In 2022, it was rocked by a “double standards” scandal after some online commentators suggested it might be selling soy sauce containing various additives in the domestic China market while keeping its exported goods additive-free.
The chatter sparked heated discussion, putting the company under closer scrutiny. Haitian clarified that all its products met rigorous national standards, only to meet with skepticism in both online and financial marketplaces, causing its stock to crash from the peak of 126.2 yuan to around 42 yuan at present. In that process, its market value has plummeted from nearly $100 billion to just $30 billion.
The company relies on a vast distributor network to get its products out, but some of those pivoted to other brands after the scandal. The rise of community-based group buying is also posing a structural challenge to its more traditional distribution network. Facing those challenges, Haitian’s stable of distributors fell from 7,430 in 2021 to 6,506 at the end of the first quarter of 2024, before rebounding to 6,722 by the end of last September.
Breaking new ground
From electric vehicle battery giant CATL to Haitian, leading Chinese companies across a wide range of sectors are flocking to the Hong Kong Stock Exchange lately thanks to policy support from both Beijing and Hong Kong itself. That’s putting Hong Kong in strong position to regain its title as one of the leading centers for global new listings this year.
Haitian said its primary goal for the Hong Kong listing was to further promote its internationalization strategy and enhance its international branding and competitiveness.
As greater health awareness leads to changes in the Chinese condiment market, it’s becoming increasingly important for Haitian, facing stagnation at home, to look abroad for new growth drivers. According to data from the China Condiment Association, the company’s overseas sales only account for 1% of its revenue, implying huge room for growth.
But the condiment industry is highly variable based on regional and cultural preferences, leading to great disparities in appetite for an identical product across different countries. That means Haitian’s overseas foray is fraught with uncertainties and structural factors such as trade barriers, while different food standards may also hamper its international voyage.
Despite the stock’s earlier crash, Haitian’s Shanghai-listed shares still currently trade at a relatively high price-to-earnings (P/E) ratio of 38 times, well ahead of the 24 times for Qianhe Condiment and Food (603027.SH) and just 15 times for Hong Kong-listed peer Yihai International (1579.HK). Such a high valuation could limit appetite among global investors, potentially forcing Haitian to seek a lower figure for its Hong Kong stock. But such is the cost of doing business, especially in overseas markets where your name and flavors are less familiar.
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