China Consumer

Saucy performance

Two of the hottest recent IPOs are for firms making soy sauce

Billboard w

Tasty profits: Laohenghe has been selling cooking wine for 130 years

At the 1915 exposition celebrating the opening of the Panama Canal, there were two unexpected winners at the event’s wine contest. Two Chinese varietals came home with gold medals: one was moutai, a grain-based liquor produced in Guizhou; the other was cooking wine made by Huzhou Laohenghe, a soy sauce maker founded more than 130 years ago.

Both tipples have enjoyed different fortunes in more recent times. Kweichow Moutai became the best- performing stock during former President Hu Jintao’s 10-year term, enjoying a 3,500% rally (see WiC172). Laohenghe’s cooking wines, meanwhile, have toiled as a more unsung contribution to the national palate.

But investor tastes seem to be changing. Thanks to Xi Jinping’s austerity drive, the share price of Kweichow Moutai has plummeted more than 40% since 2012. Laohenghe’s market value has climbed by about the same amount in the last month after going public as the Honworld Group in Hong Kong at the end of January.

Laohenghe is the largest manufacturer of cooking wine in China with a 13.5% market share in 2012. According to Euromonitor, the market is going to grow at an annual rate of 20%, reaching Rmb10 billion ($1.65 billion) in five years time. Laohenghe’s other products range from soy sauces to bean curd but all are naturally made using traditional techniques, according to the company. This explains much of their appeal, says Hong Kong Economic Times: “For most consumers, the more seasoned sauces are always the better ones.”

Laohenghe’s stock market success isn’t a one-off. Another soy sauce maker, Foshan Haitian gained 30% on its first trading day in Shanghai last week. The 300-year old firm’s Rmb3.8 billion ($634 million) offering was the second-largest since the primary market reopened this year. Within seconds of its trading debut, Haitian’s share price was up by the bourse’s 44% first-day limit.

Haitian’s heritage dates back to the Qing Dynasty, when it was formed from a group of sauce brewers in the southern city of Foshan. According to its listing prospectus, it is the biggest soy sauce maker in the country with a 20% market share. Aside from domestic rivals such as Laohenghe, it competes with the likes of Hong Kong’s Lee Kum Kee and Japan’s Kikkoman.

Local investors seemed happy to bid for Haitian’s stock, flushed with the chance to buy IPOs once more, especially of solid, reputable brands rather than some of the duds that have got permission to list in the past. Investors are jumping on the consumer staple bandwagon, the Wall Street Journal agrees, as demand for some of these less glamorous products is expected to benefit from China’s push for growth through domestic spending rather than exports or investment.

“Investors favour fast-moving consumer goods like Haitian at a time when the economy is slowing because they offer steady earnings growth,” an analyst from Huatai Securities told the newspaper.

The Hang Seng Indexes Company, which compiles Hong Kong’s key stock indices, underscored the trend last week by announcing that Mengniu Dairy will be added to Hong Kong’s benchmark next month. China Coal Energy, the country’s second-largest coalminer, will make way. The reshuffle comes after an 80% gain in Mengniu’s market value over the past 12 months.

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