Consumer-brand companies in the Chinese IPO pipeline

Written by Denis Suslov || 24 Jun 2014

Since the IPO hiatus last year many qualified mainland companies have been waiting for new capital. With banks traditionally more supportive of SOEs and PE not being able to invest since much of their capital have been locked already, many well-managed, fast-growing companies were starving of capital.

Since April 30 when the China Securities Regulatory Commission started company IPO application review, it has reviewed 20 companies, with 16 companies approved and three rejected. There are still more than 600 companies in the queue list, and 466 have disclosed preliminary prospectuses.

Consumer company's in Chinese IPO pipeline

There are many promising companies on the list, however here I would like to focus on companies with strong consumer brands. With the government now determined to increase consumption as a share of GDP, local consumer brands are vital to the restructuring of the economy and with the huge customer base companies with strong brands have some of the best upside in the world.

There are several such companies in the Chinese IPO pipeline. One of them is Spring Airlines which is the only budget airline in China and is rather creative in their business operations and marketing. For instance, the Spring Airlines charges separately for on-boarding and check-in luggage, on-flight meals, sells branded merchandize and offers exercise at the end of the flight. A customer has an option to purchase any of the additional services online or right on the flight but for a higher price. The company also lowers costs by booking very early or late time slots, and by renting check-in and boarding gates located in the most remote areas of an airport.

The company is essential in making the air flight accessible to more consumers in China. Already successful, Spring Airlines offers tickets cheaper than train tickets for many destinations. If you take the plane, you see many flyers, especially from rural areas, are enjoying the convenience for the first time in their lives, as they had to take trains before.

Another company with a strong brand is Opple Lighting which is headquartered in Shanghai and manufactures and distributes its products in China and several developing countries. Its brand is very strong in China, and its product quality is perceived to be as strong as that of Philips LED products. Privately owned since 1996, the company will greatly benefit from capital injection.

Wanda Cinemas is a movie theater chain and is 68% owned by Wanda Investment, while 32% of the company are owned by a PE fund. In 2012 Wanda Investment purchased AMC, the US second largest movie theater chain. Wanda Cinemas is a successful enterprise with 142 theaters in 73 cities of China. In 2013 the company captured 14.52% of the total mainland box office. In August 2013, Wang Jianlin, the owner of Wanda Group was listed as the wealthiest person in China with a net worth of US$ 14.2 billion by Bloomberg.

Another consumer-brand company applying for IPO is Shanghai Laiyifen Ltd., which sells confectionary and snacks online and through its multiples outlets all over the country. The company distributes a wide range of products, from small-package Oreo cookies and Mars sweets to traditional Chinese sweets and snack delicacies, some as exotic for Western taste as pickled chicken claws.

Shanghai M&G Stationary Inc. is a stationary producer with one the most well-recognized ball pen brands in China. The company had more than RMB2 billion in revenues from its main line of business in 2013. One of the main domestic competitors, True Color Inc. is also on the Chinese IPO pipeline list.

Will there be a positive effect?

Still, only time will show if the companies will have a positive effect on the stock market in general. Concerns abound, since the effect of the first batch of companies listing in January and February didn’t meet market expectations. Floodgates of the capital were not opened and the CSI300 index gained only 4% since the first new listing in January, while the average price increase for companies in the batch was 80%, according to Reuters. Even if the reform by CSRC is successful, it will take Mainland investors time to shift towards less speculative investment.

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