Good News on Listing | Frost & Sullivan Assists Zhengwei Group Holdings Limited to Successfully List in Hong Kong (2147.HK)

Zhengwei Group Holdings Limited (hereinafter referred to as 'Zhengwei') successfully listed on January 13, 2023. The company plans to issue 200,000,000 shares, including 20,000,000 shares publicly offered and 180,000,000 shares allocated. The issue price per share is HK$0.82.

During the process of listing in Hong Kong this time, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important chapters), helping the issuer complete communication with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange, etc.

The company has over 20 years of experience in dried food production and has established a brand in China;

The company has a stable customer base and long-term relationships with major clients;

The company focuses on quality, making a full commitment to standardized production and strict quality standards and controls;

The company continuously upgrades existing products and launches new ones, with innovative product development capabilities supporting a diverse portfolio;

The company has a stable supply of raw materials and a mature relationship with suppliers;

The company has a stable, experienced management team with a good track record.

According to the Frost & Sullivan report, based on 2021 revenues:

It is the fifth largest leisure food brand in Jiangxi;

As of the latest practicable date, the company's product portfolio includes 583 kinds of snacks and 630 kinds of dried goods.

Snacks refer to packaged foods typically consumed between meals, mainly including: (i) bread, cakes, and pastries; (ii) biscuits and other baked goods; (iii) candies, chocolates, and preserves; (iv) fried foods; (v) snacks made from meat and aquatic animals; (vi) vegetable snacks; and (vii) other snacks such as jelly and flavored pasta products.

The consumption of leisure food in China has been steadily growing over the past few years, with an explosion of online and offline retail channels across the country. Due to the increase in per capita disposable income and the diversification of consumer preferences, the market size of leisure food in China increased from RMB 627.7 billion in 2016 to RMB 796.1 billion in 2021, with a compound annual growth rate of 4.9%. Among all categories, vegetable snacks, meat and aquatic animal snacks, and fried foods have shown high growth rates, with compound annual growth rates of 6.3%, 5.7%, and 8.5% from 2016 to 2021 respectively.

With the emergence of creative products and the continuous growth in the demand of young consumers, China's leisure food market is expected to further expand. It is estimated that by 2026, the market size of China's leisure food industry will reach 1,105.9 billion yuan in revenue, with a compound annual growth rate of 6.8% from 2021 to 2026.

The group's dried foods mainly include dried mountain delicacies, dried aquatic products, and grains. They can be roughly divided into two sub-markets within the agricultural product processing market: 'Vegetables, mushrooms, fruits, and nuts' and 'Aquatic Products' (collectively referred to as 'Selected Sub-markets').

In terms of revenue, the market size of China's selected sub-markets has increased from RMB 667.7 billion in 2016 to RMB 681.5 billion in 2021, with a compound annual growth rate of about 0.4%. With the latest processing technologies, expanded distribution channels, and industry integration, it is expected that from 2021 to 2026, the market size of China's selected sub-markets will grow at a compound annual rate of about 4.6%, reaching RMB 854 billion.

The Chinese leisure food market is highly competitive and fragmented, with the top ten competitors accounting for only 8.0% of the market share based on revenue before 2021. Most manufacturers have a comprehensive brand portfolio with a full range of products, enabling them to reach more consumers.

In comparison, the leisure food market in Jiangxi Province is relatively fragmented, with hundreds of leisure food producers operating on the market. In terms of revenue, the top ten market participants in the Jiangxi Province's leisure food market accounted for about 29.4% of the market share in 2021. In 2021, the Group generated revenue of approximately RMB 1.711 billion from snacks in China and RMB 5.47 billion from snacks in Jiangxi Province, accounting for about 0.01% and 0.4% of the market share in China and Jiangxi Province's leisure food markets respectively.

• Growing consumer base

The consumption of snack foods provides consumers with a joyful experience, bringing them pleasure, satisfaction, and comfort. Therefore, consumers of all ages enjoy snack foods, which has led to the continuous growth of the snack food consumer group. In addition, due to the acceleration of urbanization and the improvement of logistics infrastructure, inter-provincial migration has promoted the expansion of regional cuisine. In particular, spicy snacks, which are mainly consumed in Jiangxi Province, Hunan Province, Hubei Province, Sichuan Province, Chongqing Municipality, and Guizhou Province, are gradually becoming popular nationwide. The development of China's internet, e-commerce, and social media has also contributed to the prevalence of spicy snacks. For example, more and more internet celebrities regard spicy snacks as an interesting element in their content. Well-known social platforms such as trial eating events have further accelerated the spread of spicy snacks among the public.

• The increase in disposable income has led to an uptick in purchasing power

The demand for leisure food is related to consumers' income levels. As China's per capita annual disposable income and per capita food expenditure continue to increase, the leisure food industry in China is expected to benefit from the rise in income levels. With the continuous growth of disposable income, people are expected to be more willing to spend on snacks, thereby helping leisure food producers including the Group.

• Diverse consumption occasions and increasing consumption frequency

The ever-changing consumption habits are the key to the development of China's leisure food industry. The consumption of leisure food is no longer limited to dietary needs but has expanded to various consumer occasions, including leisure activities, entertainment, tourism, and working hours. The diversification of consumption occasions has increased the frequency of leisure food consumption, further driving its market growth.

• Continuous product innovation and updates

Leading snack food manufacturers are currently focusing on launching innovative products with new flavors, differentiated packaging, and product upgrades to meet rapidly changing customer preferences and tastes, thereby helping to build brand loyalty. Continuous product innovation and snack food updates enable producers to stand out from competitors and attract mature consumers, thereby driving sales growth. For example, spicy snacks have expanded to include new flavors such as sweet and sour, tangy and spicy, to meet the needs of a wider range of consumers, which has promoted the development of the industry. In addition, the spicy snack food industry has also seen the emergence of potential sub-segments such as seaweed and konjac snacks. Thanks to their delicate taste and continuous updates of existing products along with the launch of new ones, these products are highly attractive to consumers. Snack food manufacturers' taste innovation and product updates make consumers more willing to try and increase their repurchase rates, prompting producers within the industry, including our group, to continuously commit to product innovation and updates.

• Retail channel improvement

The penetration rates of modern retail channels such as shopping malls, supermarkets, and chain convenience stores in first-tier cities, as well as traditional retail channels like small grocery stores and non-chain convenience stores in lower-tier cities, are continuously increasing, improving the retail coverage of convenience foods. The improvement in retail channels has increased consumer frequency, gradually unlocking market potential in second- and third-tier cities. In addition, the expansion of the internet user base and the popularization of mobile Internet and e-commerce have made the purchase and consumption of convenience foods more convenient and affordable, thereby driving online consumption of convenience foods in China. More and more convenience food producers, including the Group, have established online retail channels on large online shopping platforms such as Tmall and JD.com. The popularization of online sales has provided additional sales channels for convenience food sales and helped promote the sales of convenience food producers.

• The process of urbanization is accelerating

From 2016 to 2021, China's urbanization rate increased from 57.3% to 7.4%, rising by 7.4 percentage points, and is expected to accelerate to 74.2% by 2026. The continuous increase in the urbanization rate has greatly improved people's living standards, thereby stimulating their demand for dried foods. The ongoing urbanization process has also provided more retail channels for consumers to buy dried foods, driving the growth of dried food sales. The acceleration of the urbanization process has driven increased consumer demand, and the continuous increase in retail channels is conducive to dried food producers including the Group expanding their market reach because they can more easily access a wider consumer base across the country through various online and offline sales channels.

• The purchasing power of Chinese consumers has risen

From 2016 to 2021, the per capita disposable income of urban residents in China increased from RMB 33,600 to RMB 47,400, with a compound annual growth rate of 7.1% from 2016 to 2021. Looking ahead, it is expected that per capita disposable income in towns will grow with the macroeconomic growth and reach RMB 66,500 by 2026. Consumers' purchasing power usually increases with the improvement of income levels, thereby driving their demand for dried foods, providing growth potential for the dried food market, and benefiting market participants including the Group.

• Consumption trend upgrade

With the improvement of income levels and purchasing power, the consumption structure of Chinese residents has been continuously improving in recent years. The consumption of dried foods is not only for filling hunger but has gradually evolved into a joy and enjoyment. As consumers pay more attention to the quality of life, their sensitivity to price when purchasing dried foods is decreasing, and they are focusing more on product quality, ingredients, packaging methods, and nutritional value. It is expected that producers of dried foods, including this group, will continue to invest in product development and continuously expand and enrich their product portfolio to maintain competitiveness in the market.

Frost & Sullivan has extensive research experience in the food and beverage, as well as catering industries. It has assisted many well-known enterprises in successfully listing on capital markets. Successful listings include: Teka International (9658.HK), Weilong (9985.HK), Shuangcai Zhuang (2321.HK), Helen's (9869.HK), Youran Animal Husbandry (9858.HK), Jiulongwang (1927.HK), Yumart (9987.HK), Nongfu Spring (9633.HK), Fengxiang Food (9977.HK), JiuMaoJiu (9922.HK), China Feihe (6186.HK), Fast Food Empire (1843.HK), Taixing Group (6811.HK), China National Tobacco International (6055.HK), Luckin Coffee (LK.NASDAQ), Pig King (8096.HK), Youpin 360 (2360.HK), Wugu Mofang (1837.HK), Haidilao (6862.HK), Sustain Agriculture (8609.HK), Longhui Holdings (1007.HK), Xinrong International (1587.HK), Yiyuan Liquor (8146.HK), Xufulou (1978.HK), Jierong International (2119.HK), Bins International (1705.HK), Top Standard (8510.HK), Yum ·Gome (8371.HK), Nissin Foods (1475.HK), Asia Grocery (8413.HK), Chowking Duck (1458.HK), COFCO Meat (1610.HK), Yihai International (1579.HK), Zhongdi Dairy (1492.HK), Dairy Queen (3799.HK), Manor Ranch (1533.HK), Xabu Xabu (0520.HK), Wanzhou International (0288.HK), and others.