An oil empire

The Moutai of cooking oil

Two years before founding his agribusiness conglomerate Wilmar International in Singapore, Kuok Khoon Hong – nephew of Malaysian tycoon Robert Kuok – had already sought to upend China’s edible oil market. Since 1991, when Kuok launched the Arawana brand, Chinese households have weaned themselves off the habit of buying cooking oils that grocers siphoned from large jars into the customers’ own tins. With rising affluence, new middle class consumers began to prefer pre-bottled Arawana oil.

Today, Yihai Kerry Arawana, Kuok’s food venture in China, has become a much more diversified enterprise, encompassing a wide array of primary food products and animal feeds.

As a popular Chinese saying goes, oil, rice, salt and tea are among the “seven necessities to begin a day”. And significantly Yihai Kerry is the leading player in a number of these goods. Last year it commanded over 38% of the market for edible oil, 18% for packaged rice and 27% for flour.

Such clout proved alluring to investors in its recent fundraising exercise. Selling 10% of its enlarged share capital on ChiNext on October 15, Yihai Kerry raised Rmb13.9 billion ($2 billion) – making it the biggest ever initial public offering on that Shenzhen bourse.

The flotation was 3,499 times oversubscribed, and brisk trading then pushed the stock price up 118% on its debut, lifting its market capitalisation to the top spot among the ChiNext’s 868 listings at Rmb303.5 billion. Analysts have even dubbed Yihai Kerry as “the Moutai of cooking oil”, comparing it to the most valuable A-share listed in Shanghai.

In fact, Yihai Kerry’s income reached Rmb171 billion in 2019, nearly twice the sum Kweichow Moutai made the same year. However, the company reported net profits around the Rmb5.5 billion mark for the past three years, translating into a profit margin of just 3.5% (that of Moutai is over 30%).

“My mother had told me repeatedly that we should not profiteer from food necessities such as rice, sugar and food,” Robert Kuok once told reporters in China. “We will never be the culprit of pushing up food prices.”

According to Sina Finance, the sensitive nature of Yihai Kerry’s business, which directly weighs on China’s food security, is the main driving force for the company to go public on a local bourse.

While providing Yihai Kerry with new funds to double down on the China market, the IPO was also designed to soften Yihai Kerry’s image as a foreign-owned enterprise, Sina Finance quoted CEO Mu Yankui as saying.

Kuok Khoon Hong himself obtained permanent residency from the Chinese government a few years ago, the news portal suggested, giving Yihai Kerry more of the characteristics of a local firm.

Its overseas background has sometimes proved a hindrance. For instance, in 2008 it was forced to drop its bean processing business due to a newly devised ban on foreign participation in that sector. In 2009, it was excluded from a list of companies that were given permission to purchase rapeseed when prices were depressed.

Indeed, from its early days Yihai Kerry understood it could not go it entirely alone as a foreign firm. It gained its initial foothold via a partnership with state-owned grain trader COFCO. In 2001 COFCO exited the joint venture, frustrated by its lack of voting power, reported Sohu Finance. COFCO had also launched rival edible oil brands, so the parting of ways with Kuok may have been inevitable.

Nowadays Yihai Kerry has diversified into central kitchen catering. The Rmb400 million facility it is building in Chongqing focuses on supplying broth and ingredients for Sichuan-style hotpot.

“Our investment in China over the next three to five years is going to exceed what we have committed in the last three decades,” Mu told state broadcaster CCTV.

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