On June 28th, one of the leaders in the artificial sweetener industry, sucralose, made its debut on the Hong Kong Stock Exchange. In 2023, the revenue of 100-300 billion yuan products was 401/1288/60 million yuan respectively, with an overall sales volume of 18,000 kiloliters, a year-on-year growth rate of +28.10%, showing significant growth.
The '0 sugar' trend has also reached upstream sweetener manufacturers, and New Qi'an's revenue has greatly increased through the sales of sucralose in 2022. However, the gradually unbalanced supply and demand of the sucralose market quickly led to a price war, with nearly 60% of revenue depending on brands such as Coca-Cola and Nestle. New Qi'an arrogantly refused to participate in the price war, but it was still difficult for insiders to stand alone. Last year, New Qi'an's profits 'bent', and its cash flow shrank by 80%. Despite New Qi'an's unstable performance, the actual controllers promised investment returns to some investors prior to the IPO and provided nearly 30 million yuan in cash compensation in advance.
New Qi'an transferred to the Hong Kong Stock Exchange and promised returns to previous investors before the IPO.
New Qi'an is a typical family business. In 2003, founder Wang Xiaoqiang set up New Qi'an. On the day of the signing of the prospectus, Wang Xiaoqiang and his spouse Ding Dan held 50% of the shares of New Qi'an Industrial, the controlling shareholder of the listed entity New Qi'an, and New Qi'an Industrial held approximately 41.1% of the shares. In addition, Wang Xiaoqiang directly holds 6.9% of New Qi'an's shares, while Ding Dan, through the controlled Polymeric Investment, holds 6.8% of New Qi'an's equity. Wang Xiaoqiang, Ding Dan, New Qi’an Industry and Polymeric Investment jointly form the controlling shareholders of New Qi'an, with a total holding ratio of 54.8%.
In addition to the Wang Xiaoqiang couple's shareholding, Wang Xiaoqiang's relatives together control the board of directors of New Qi'an. Currently, New Qi'an's board of directors consists of 5 executive directors, 1 non-executive director, and 3 independent non-executive directors, of which 4 of the 5 executive directors are members of Wang Xiaoqiang's family, including himself, his son Wang Hao, his cousin Wu Dingfeng, and his niece Zuo Yue. In addition, He Qingfeng, the spouse of Wang Xiaoqiang's brother, holds 3.8% of New Qi'an's equity and is also a supervisor of Tibet New Qi'an, one of its main subsidiaries.
In 2022 and 2023, New Qi'an will distribute cash dividends of 8.6 million yuan and 111 million yuan respectively. Based on their shareholding ratio, the Wang Xiaoqiang couple will receive over 65 million yuan in advance.
Based on its 2023 production capacity and sales volume, New Qi'an is one of the top 5 sucralose producers in the world. Last year, New Qi'an planned to enter the capital market for the first time. In July 2023, New Qi'an filed for counseling registration with the Jiangxi Securities Regulatory Bureau. However, less than a year later, New Qi'an changed its position and debuted on the Hong Kong Stock Exchange on June 28th.
Before the IPO, New Qi'an completed two rounds of financing. In 2015, New Qi'an completed its A-round financing, and GuoXinHongSheng invested 50 million yuan. In 2017, Pingtan Xinghang Investment participated in New Qi'an's B-round financing with 56.3 million yuan. In 2020, Pingtan Xinghang Investment dissolved, and its shares are currently held by Xingzheng Strategic Entrepreneurship, Xingzheng Saifu Investment, and Xingzheng Saifu One Investment.
In addition, Xiuneng Investment, Fuxing Investment, and individuals Zhang Chaoyi and Huang Yanlu also invested in New Qi'an in 2017. In that year, New Qi'an raised more than 250 million yuan.
At the same time as GuoXinHongSheng and other investors invested in New Qi'an, they had certain special rights such as nomination and veto, but in order to list for IPO, New Qi'an Industrial, Wang Xiaoqiang, and GuoXinHongSheng signed a supplementary agreement in June 2024 to terminate all special rights of the investors.
It should be noted that the supplementary agreement requires New Qi'an to go public before June 30, 2025. If it fails to do so, the investors' special rights will be restored. In addition, the supplementary agreement gives special investor the right to a guaranteed return.
The so-called guaranteed return right means that Wang Xiaoqiang and New Qi'an Industry guarantee a certain investment return for investors' previous investment behavior. As of June 30th, considering the remaining investment amount, dividends, and return on investment, calculated based on the current valuation of New Qi'an, if the actual return on investment of investors is lower than the part guaranteed by Wang Xiaoqiang, he needs to make up the difference in cash for the investors.
So far, New Qi'an Industry and Wang Xiaoqiang have paid compensation of 10 million yuan to GuoXinHongSheng, 4 million yuan to Xingzheng Strategic Entrepreneurship, Xingzheng Saifu Investment and Xingzheng Saifu One Investment, and 11.25 million yuan and 3.75 million yuan separately to Zhang Chaoyi and Huang Yanlu. New Qi'an stated that the guaranteed return is based on investors' previous investment amount and fixed return amount and does not affect the company's market value after listing.
With the '0 sugar' trend and the fierce competition of downstream consumer brand, the rapidly expanding demand stimulated the upstream artificial sweetener industry, sucralose. As the supply and demand of the sucralose market gradually became unbalanced, it quickly fell into a price war. Last year, New Qi'an's profits 'bent', and its cash flow shrank by 80%.
With the '0 sugar' trend and the fierce competition of downstream consumer brand, the rapidly expanding demand stimulated the upstream artificial sweetener industry, sucralose. As the supply and demand of the sucralose market gradually became unbalanced, it quickly fell into a price war. Last year, New Qi'an's profits 'bent', and its cash flow shrank by 80%.
Currently, Xin Qi'an's business consists of two parts: glycine and sucralose. In recent years, the sales proportion of food-grade glycine has decreased from 49% to around 40%, while the revenue proportion of sucralose has continuously increased from 33% in 2021 to 51.1% in 2023, overtaking glycine. The trend of the sucralose industry has a great impact on Xin Qi'an's revenue fluctuation.
In 2022, Xin Qi'an's highest revenue reached 0.761 billion yuan, and the net profit was about 0.122 billion yuan. In the same year, Xin Qi'an's net profit margin reached 16%. However, due to the impact of the sucralose industry's price war, Xin Qi'an's revenue shrank by 41% in 2023, to 0.447 billion yuan, and the net profit during the same period decreased by 63% to 44.66 million yuan.
Due to the rapid expansion of the industry in the early stage, the sucralose market supply and demand became increasingly unbalanced. In December 2021, after the sucralose price reached its peak, it began a continuous 28-month decline. By the end of 2022, the sucralose industry had already entered a price war. Since then, Xin Qi'an's average export price of sucralose has dropped from 386.3 yuan per kilogram in 2022 to 186.5 yuan per kilogram in 2023, a decrease of nearly 52%, and the domestic market price has decreased even more, by more than 55%.
In the prospectus, Xin Qi'an explicitly stated that the company will not participate in the price war, and Xin Qi'an's confidence comes from direct customers that make up over 59% of the company's revenue. Although not the largest in scale, Xin Qi'an is the earliest among the top five leading enterprises to enter the sucralose industry, and with the advantage of being an early player, Xin Qi'an has tied up brand customers such as Coca-Cola, Nestle, and Mars.
In the past three years, about 60% of Xin Qi'an's revenue depends on the top five customers, of which Nestle and Coca-Cola have always been Xin Qi'an's top two customers. From 2021 to 2023, Xin Qi'an's revenue respectively came from Nestle and Coca-Cola, accounting for 40.5%, 39.3%, and 32.4%.
Due to the influence of customers, Xin Qi'an's domestic market revenue proportion is not high. In 2023, 36.5% of Xin Qi'an's revenue came from Europe, and the revenue proportion from North America increased from 7.3% in 2021 to 18.4%, contributing more than 54% of Xin Qi'an's revenue in these two markets.
Compared with the domestic market, sucralose prices in overseas markets are relatively stable. The average price of Xin Qi'an's sucralose even rose by about 10% in 2023, reaching 623 yuan per kilogram. Last year, the average sales price and export price of Xin Qi'an's sucralose in the domestic market were 0.1771 million yuan per ton and 0.2486 million yuan per ton, respectively. Therefore, while the revenue from the domestic market was declining, the export of sucralose contributed more than 40% of the company's revenue.
In recent years, Xin Qi'an has also gradually laid out factory resources in Southeast Asia. For example, the food-grade glycine produced by Xin Qi'an's Indonesian factory is exclusively for sale in the American market. The average glycine price of the Indonesian factory last year was 0.0375 million yuan per ton, while the Yujiang factory that serves both domestic and overseas markets had a glycine selling price of only 0.0147 million yuan per ton.
Xin Qi'an also has a similar layout for sucralose. Currently, Xin Qi'an's sucralose factory in Thailand serves the overseas market, and it will start trial production in the first half of 2024 and officially start sales in the second half. According to Xin Qi'an's forecast, the designed annual production capacity of the Thailand factory's sucralose will reach 500 tons, and its selling price will be much higher than the Jigang factory's price in the domestic market.
But even if it ties up with large customers, Xin Qi'an, as a player in the game, is still difficult to stand alone. In 2023, Xin Qi'an's gross margin still maintained a high level of 17.9%, but it has declined nearly 8 percentage points from 2022. Meanwhile, Xin Qi'an's net cash inflow from operating activities last year was 26.2 million yuan, shrinking by 80% compared with the previous year. Finally, Xin Qi'an's net profit margin also declined by about 6 percentage points.
As of April this year, the average domestic market price of sucralose has further dropped to 110 yuan per kilogram. This round of price wars has not yet come to an end, and Xin Qi'an expects that the revenue for the first four months will continue to decline compared with 2023.