On July 31, Sichuan Dekang Agriculture and Animal Husbandry Food Group Co., Ltd. (hereinafter referred to as "Dekang Group" or "Dekang Agriculture and Animal Husbandry") submitted a prospectus to the Hong Kong Stock Exchange, preparing to apply for listing on the main board of the Hong Kong Stock Exchange. CICC The company and Citigroup are its joint sponsors. According to Beido Finance, this is the third time the company has submitted forms.
Previously, on June 29, 2021 and January 31, 2023, Dekang Group had submitted listing application materials to the Hong Kong Stock Exchange respectively, but failed to pass the hearing and offer shares. Compared with the previous prospectus, Dekang Group has updated its financial data and other information as of May 31, 2023.
Bedouin Finance found that Dekang Group’s income is mainly contributed by the family farm model, while the contribution of self-operated farms accounts for less than 20%. In addition, Dekang Group still has huge debts, with outstanding loans of about 9.3 billion yuan. In this sprint to go public, what are the chances of Dekang Group winning?
1. Revenue continues to grow, and profit levels fluctuate significantly
Tianyan check information shows that Dekang Group was established in April 2014, formerly known as Sichuan Dekang Agriculture and Animal Husbandry Technology Co., Ltd. At present, the company's registered capital is about 362 million yuan, the legal representative is Wang Dehui, and its main shareholders include Sichuan Deshengronghe Industrial Group Co., Ltd., Chen Yuxin, Everbright Holdings, and Hosheng Investment.
According to the prospectus, Dekang Group is a livestock and poultry breeding enterprise, focusing on the breeding and breeding of live pigs and yellow-feathered broilers. Dekang Group stated in the prospectus that the company has a vertically integrated industrial chain in pig and yellow-feathered broiler breeding, breeding and feed production.
In addition to the self-operated farm model, Dekang Group also adopts the family farm model. Under this model, Dekang Group mainly cooperates with individual farmers who are independent third parties in the company's hog and commercial broiler production. Dekang Group stated in its prospectus that in the past 10 years, the sales of live pigs of Dekang Group have increased by more than 100 times.
According to the Frost & Sullivan report, in terms of hog sales in 2022, Dekang Group ranks sixth among all hog suppliers in China, with a market share of 0.8%; Ranked third among yellow feather broiler suppliers, with a market share of 2.1%.
At present, Dekang Group's business is mainly divided into three segments, namely pigs, poultry and auxiliary products. Among them, auxiliary products mainly include feed ingredients, hog products mainly include commercial pork pigs, breeding pigs, commercial piglets and boar rice green liquid, and poultry products mainly include yellow-feathered broiler chickens and chicklings.
In 2020, 2021, 2022 and the five months ended May 31 in 2023, Dekang Group will achieve revenues of approximately 8.145 billion yuan, 9.902 billion yuan, 15.037 billion yuan, and 6.362 billion yuan, respectively. 3.608 billion yuan, -3.173 billion yuan, 910 million yuan and -2.184 billion yuan.
It is not difficult to see that the revenue of Dekang Group has maintained a growth trend as a whole, but the profit level has fluctuated significantly. In 2021, Dekang Group recorded a net loss of 3.173 billion yuan, and in the first five months of 2022, it recorded a net loss of 2.184 billion yuan. In 2020, Dekang Group also announced a dividend of 80 million yuan, which was settled in October 2020.
Dekang Group stated in the prospectus that the company's operating performance may be significantly affected by the sales price of live pigs and poultry products, thereby affecting revenue, and by the purchase price of feed and feed ingredients (main raw materials), thereby affecting the company's income. cost to the company.
2. Debt of 9.3 billion yuan, Wang Degen holds about 40% of the shares
However, Dekang Group is not short of money. As of December 31, 2022, Dekang Group's cash and cash equivalents were approximately 2.843 billion yuan, and as of May 31, 2023, it was 2.242 billion yuan. As of May 31, 2023, the retained profit of Dekang Group according to the International Financial Reporting Standards is 902 million yuan, which is a reserve available for distribution to shareholders.
It is worth mentioning that Dekang Group plans to use part of the proceeds from the listing to repay certain outstanding bank loans with interest rates ranging from 2.1% to 4.2%. According to the prospectus, as of May 31, 2023, the outstanding debt of Dekang Group is approximately 9.337 billion yuan, including interest-bearing loans and lease liabilities.
In addition, the International Cooperation Department of the China Securities Regulatory Commission also issued feedback on its listing application materials, requiring the company to supplement the reasons for the failure of the previous issuance and the relevant arrangements to promote the smooth completion of this issuance. The China Securities Regulatory Commission also asked it to explain the reasons for the transfer of shares by the company's natural person shareholders, the consideration and pricing basis after the approval, and whether there is any benefit transfer behavior.
According to the application materials, Dekang Group has non-compliance incidents in safety production and environmental protection, and some production and operation sites have not obtained the required qualification certificates. In this regard, the China Securities Regulatory Commission asked it to explain the rectification situation and whether the relevant production and operation compliance issues had a major adverse impact on this issuance.
On July 19, 2023, the International Cooperation Department of the China Securities Regulatory Commission issued a "full circulation" filing notice for domestic unlisted shares to Dekang Group. According to the announcement, the six shareholders of the company intend to convert a total of 24,577,330 domestic unlisted shares held by them into overseas listed shares, which will be listed and circulated on the Hong Kong Stock Exchange (the "HKEx").
In the equity structure of Dekang Group before this listing, Wang Degen directly holds 3.29% of the shares, and holds 36.21% of the shares through Sichuan Desheng Ronghe Industrial Group, for a total of 39.50%. At the same time, Wang Dehui, Wang Degen's brother and the chairman of the board of directors of Dekang Group (the "chairman") holds 1.65%.
In addition, Chen Yuxin holds 12.34% of the shares, Guangkong Maiming holds 10.38%, Song Fuxian holds 4.94%, Tang Jianyuan holds 4.11%, Yixing Guangkong holds 3.39%, Peng Benping and Peng Bengang each hold 3.29%, and employees hold shares The platform Zhongcheng Jinyi holds 2.62% of the shares, and the employee-owned platform Tongchuang Deheng holds 0.48% of the shares.
Hu Wei and Chengdu Jiakun each hold 2.47% of the shares, Suzhou Houqi holds 1.81% of the shares, Liu Guofeng and Chen Yuhe each hold 1.65% of the shares, Shu Dingming holds 1.27%, Yao Hailong holds 0.82% of the shares, and Changzhou Mailun holds the shares 0.75%, Shanghai Xunran holds 0.54%, Xu Wei holds 0.41%, and Tang Xiaoping holds 0.16%.
3. Income depends on the family farm model, and a slaughterhouse needs to be built
In terms of business structure, Dekang Group's income mainly comes from hog products. In 2020, 2021 and 2022 and the five months ended May 31, 2022 and 2023, the revenue contributed by the company's hog products accounted for 70.6%, 72.4%, 78.1%, 75.2% and 78.8% of the total revenue, respectively. %, all exceeding 70%.
During the same period, the poultry products of Dekang Group accounted for 28.1%, 26.4%, 21.4%, 24.3% and 19.9% of the total revenue respectively; the revenue contributed by auxiliary products accounted for 1.3%, 1.2%, 0.5% and 0.6% of the total revenue respectively. % and 1.3%. Bedouin Finance found that poultry products have become the revenue growth point of Dekang Group.
According to the prospectus, Dekang Group's pig breeding is carried out in the No. 2 family farm, No. 1 family farm and self-operated farm mode. At the same time, Dekang Group selects and breeds breeders and hatches eggs in its own breeder farms and hatcheries. For commercial broiler farming, the company adopts the poultry family farm model and the poultry farming community model.
In 2020, 2021 and 2022 and the five months ended May 31, 2022 and 2023, the sales revenue of Dekang Group’s live pigs and yellow-feathered broilers raised under the family farm model will be 7.347 billion yuan and 7.885 billion yuan, respectively. RMB 12.885 billion, RMB 3.841 billion and RMB 5.435 billion, accounting for 90.2%, 79.6%, 85.7%, 83.8% and 85.4% of its total revenue respectively.
Relying on its accumulation in pig and poultry farming business, Dekang Group plans to expand its business to downstream industries, including slaughtering and processing of pigs and poultry, production and sales of fresh pork and chicken, and meat products. Dekang Group stated in the prospectus that the company's vertically integrated business model will enable it to highly control the quality and safety of the entire value chain.
As at the Latest Practicable Date, Dekang Group's food processing plant project in Yibin City, Sichuan Province is in progress, and its slaughterhouse is expected to be completed in the third quarter of 2023, with a target annual slaughtering capacity of more than 3 million hogs. The company has also established a joint venture with Tones to build a slaughterhouse in Meishan City, Sichuan Province, with an initial target of slaughtering more than 2 million pigs per year.
According to the prospectus, Dekang Group has also adopted a variety of methods to mitigate the impact of feed price fluctuations, including flexibly adjusting feed formula while adhering to nutritional standards, diversifying feed raw materials, so that price fluctuations of one raw material will not It has a significant impact on feed prices, maintains diversified supply channels, and uses commodity futures for raw material purchases, etc.