Three Squirrels chases Hong Kong listing in scurry for offshore cash

The snack food maker is joining a wave of companies listed on China’s domestic A-share markets hoping to target global investors with second IPOs in Hong Kong

Key Takeaways:

• China’s leading snack food maker Three Squirrels has filed for a Hong Kong IPO, with nut products accounting for over half of its revenue
• The company is well placed in a highly fragmented domestic market where per-capita spending on snacks is significantly lower than in many developed countries

By Bai Xinrui

The intensifying trade war between China and the U.S. is hurting Chinese exporters, prompting Beijing to try to take up some of the slack by stimulating domestic demand. That’s just fine for Three Squirrels Inc. (300783.SZ), whose snacks are already household names among many Chinese, as it looks to raise its global profile with a planned Hong Kong IPO. Such a move, disclosed in its IPO filing late last month, would complement the company’s current listing in Shenzhen, making it China’s first snack brand offering a bite of itself to both domestic and international investors.

The company was established in 2012 by Chairman and general manager Zhang Liaoyuan. It made a relatively steady, though perhaps not too exciting, living off its nuts and other snack foods in its early days, until its business was turbocharged by the internet more recently. By the time Three Squirrels listed on Shenzhen’s Nasdaq-style ChiNext board in 2019, it had already grown into a giant with annual revenue of more than 10 billion yuan ($1.38 billion). Zhang remains the company’s biggest shareholder with 42% of its shares.

Slow but steady growth

China’s 1.4 billion mouths make its snack market full of potential, worth an estimated 1.08 trillion yuan in 2019 and growing by an average 4.4% each year to reach 1.34 trillion yuan by last year. With innovative new ideas constantly emerging and demand for healthy foods growing, the market is expected to hit 1.76 trillion yuan in value by 2029, growing around 5.5% annually over the next five years, according to third-party market data in the listing document.

Snack foods typically refer to small portions of packaged or bulk food consumed between meals, often as a quick bite. They are convenient, easy to eat and designed to satisfy hunger or cravings without the need for a full meal. They come in various categories, including nuts and seeds, crispy snacks and biscuits, confections and chocolates, baked snacks, meat and aquatic animal snacks, fruit snacks, seasoned flour products and children’s snacks, among others.

At the top of the snack industrial chain are upstream suppliers of raw materials like agricultural and livestock products, condiments, food additives and packaging materials. The midstream includes brands, both Chinese and foreign. At the bottom of the snack food chain are downstream retailers and other channels that sell to final consumers over online or offline channels.

Three Squirrels is not only the biggest Chinese online snack company but also the biggest online seller in three major categories: nut products, baked snacks and meat snacks. The company has sold over 1,000 different products, known in the industry as standard product units or SPUs. Nut products were its best seller, accounting for more than half of its sales between 2022 and 2024. Three Squirrels sold 5.37 billion yuan worth of such products last year, accounting for 50.5% of its total revenue that year, up 40.8% year-on-year. They generated a gross profit of 1.29 billion yuan, up 46.3% year-on-year.

Those big gains lifted the company’s total revenue by 49.3% last year to 10.62 billion yuan, while its profit rose 85.5% to 407 million yuan, showing nuts can be big business in China.

To keep the nut business growing, the company plans to invest 230 million yuan to add six new processing factories. Four will come on stream this year, with the other two joining next year. Those new facilities, combined with Three Squirrels’ 22 existing production lines, will bring its total annual capacity to 63,500 tons of snacks.

Squirreling away for M&A

While Three Squirrels is a relative heavyweight in its sector, China’s overall snack industry is highly fragmented with minor brands taking up much of the market. The top five players accounted for just 5.9% of the market last year, while the top 10 took 10.4%. Despite its hefty market cap of over 10 billion yuan, Three Squirrels took just 1.04% of the market last year. It may be hoping to use some funds from its Hong Kong listing to bolster its position through M&A to consolidate its position.

While M&A offers strong potential, the China snack market also holds out room for growth due to the country’s relatively low per-capita spending on snacks. According to a Ping An Securities report, the average Chinese spends just $87 per year on snacks, a tiny fraction of the $400 for Americans, $328 for British consumers, and $287 and $228 for Japanese and South Koreans, respectively. That suggests big room for further growth as Chinese consumers catch up with their peers in developed countries.

Three Squirrels is notable for its unique marketing strategies. Those include a series of self-produced TV shows, short videos, theme songs and interactive events with the company’s namesake Three Squirrels at the forefront to promote its brand image and deepen its connection with consumers. It also offers specialty brand products to further enhance its profile and uses an “entertainment strategy” complete with brand IP, product placements and derivative products to engage more closely with consumers.

As Chinese consumers become more health-conscious, the company also rolled out its Deer Blue brand in 2020 targeting infants, with the goal of providing them with healthy food and snacks. However, the brand itself is still in its infancy, accounting for just 7.5% of the company’s sales last year. The Three Squirrels brand still remains the king of the company’s roost, accounting for 92.5% of last year’s sales.

Analysts expect the company’s profit to grow more than 40% again this year to 576 million yuan. Its Shenzhen-listed shares currently trade at a forward price-to-earnings (P/E) ratio of 21 times, higher than the 18 times for international peer Calbee (2229.T). Hong Kong investors typically value stocks at lower multiples than their Chinese peers. But with its strong growth and potential to emerge as a consolidator in China’s huge snack market, it’s possible Three Squirrels could defy the odds and seek a valuation for its Hong Kong stock similar to its Shenzhen valuation.

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