NONGFU SPRING CO., LTD., China's largest bottled faucet company, surged 85 per cent on its first day of listing in Hong Kong on Tuesday, opening at HK $39.80 before closing down to HK $33.10, up 53.95 per cent for the day. Previously, the company's initial public offering price was $21.50.

NONGFU SPRING CO., LTD. sold 388.2 million shares in IPO, with cornerstone investors including fund manager Fidelity, hedge fund Coatue and Singapore sovereign wealth fund GIC, one of the largest IPO in Hong Kong this year.

In the prospectus, NONGFU SPRING CO., LTD. quoted Frost and Sullivan as saying that the company had the largest market share in China's packaged drinking water market between 2012 and 2019, and that in addition to bottled water, the company also produced other packaged beverages such as tea, coffee and fruit juices.

Dickie Wong, executive director of Kingston Securities, an investment firm, said NONGFU SPRING CO., LTD. was "one of the hottest IPO" in the history of the Hong Kong stock market, and the company's IPO was 1148 times oversubscribed.

The analyst explained that investors are interested not only in NONGFU SPRING CO., LTD. 's fundamentals, but also in high profit margins. Given the high valuations of many stocks, especially technology Internet companies, and the scarcity of investment opportunities in the market, investors are also more likely to subscribe for new shares.

Independent analyst Fraser Howie also pointed out that as major central banks around the world keep interest rates low, this is also one of the reasons for the flow of money to the stock market. "half of the world's major central banks keep interest rates below zero, the other half keep interest rates to the lowest, and governments are printing money non-stop," the analyst said. The global market is full of money, and Chinese companies are hot. "

While NONGFU SPRING CO., LTD. is highly respected by the market, there are still some problems that can not be ignored to consider:

NONGFU SPRING CO., LTD. faces fierce competition, and the decline in business such as tea and beverages is more obvious.

According to public data, NONGFU SPRING CO., LTD. 's revenue rose 17.3% to 24.02 billion yuan in 2019, but the company said that from January to May this year, under the influence of novel coronavirus, its revenue fell 12.6% from a year earlier to 8.66 billion yuan. Among them, tea drinks, energy drinks and fruit juices fell more obviously, falling by 21.2%, 40.9% and 13.6%, respectively.

NONGFU SPRING CO., LTD. 's market is full of competition. when the company first entered the market, it asserted with a "NONGFU SPRING CO., LTD. experiment" that natural water was healthier than pure water, thus crowding out many competitors in exchange for an equal market position with Wa, the industry mogul at that time.

However, with the change of consumer attitudes, NONGFU SPRING CO., LTD. 's competitors have not become less, but more and more. In addition to traditional brands such as Wa and Master Kang, there are also new brands such as Xi Tea and Yuanyuan Forest, which are rising rapidly with the help of capital strength and new marketing channels.

Among them, a previous set of data from Nielsen China showed that among the six major drinks in the Chinese market, inflated drinks and instant tea both grew by 12% in 2019, while sugar-free sparkling water also showed an astonishing rise. Mintel's market research also showed that half of the consumers surveyed said they preferred low-or sugar-free drinks, especially sparkling drinks or tea drinks.

In addition, the new generation of brands such as Yuanyuan Forest, with the help of new games and product ideas, although Yuanyuan Forest has not released sales data, but the speed of financing shows that capital is in pursuit of it. Four rounds of financing were completed from the end of 2017 to October 2019, Angel round and AB round financing were not announced, and the fourth round of strategic financing received 150 million yuan, corresponding to 4% equity, with a valuation of 3.75 billion yuan. And like tea, Nai Xue tea and other tea beverage brands are also aggressive, there are repeated rumors of imminent listing.

NONGFU SPRING CO., LTD. 's listing has indeed enriched more "ammunition" for the company in order to cope with the competition from the future and more competitors. According to the prospectus, the company raised more than 8 billion Hong Kong dollars, which is planned to be used for NONGFU SPRING CO., LTD. brand building, buying refrigerators, wardrobes and other equipment, and increasing production facilities.

Is the NCP system expected to solve NONGFU SPRING CO., LTD. 's channel deficiency? Rely more on e-commerce channels

Compared with other large beverage giants in the industry, NONGFU SPRING CO., LTD. 's sales channel also has shortcomings. Prior to this, NONGFU SPRING CO., LTD. did not form a set of mature dealer management and profit distribution mechanism at the beginning of its establishment, which led to channel and price confusion. Therefore, after 2008, NONGFU SPRING CO., LTD. began to invest a lot of human and financial resources in the construction of the information system, including the development of the NCP system, which was mentioned many times in the prospectus issued in April this year.

The retail channels of beverage brands in China are usually divided into five categories, including traditional channels (mainly small grocery stores, non-chain convenience stores, etc.), modern channels (mainly shopping malls, supermarkets and chain convenience stores), catering channels, e-commerce channels, and other channels. From 2014 to 2019, the compound annual growth rate of e-commerce channels reached 12.9%, far higher than other channels. At present, the contribution of e-commerce channels to NONGFU SPRING CO., LTD. 's sales is also gradually increasing.

In addition to e-commerce channels, NONGFU SPRING CO., LTD. 's prospectus also mentioned that the company through the dealer management system "NCP system" real-time management from 12000 front-line sales and sales management personnel. The system can analyze dealer inventory through big data and automatically generate inventory early warning according to historical data and distribution performance to guide distribution activities.

In this fund-raising purpose, the company also made it clear that about 4% of the funds will be used to build the information system, in order to better improve the sales data system.

Aging of management team

On the first day of listing, nothing was more spectacular than NONGFU SPRING CO., LTD., who was once the richest man in China.

According to the prospectus, Mr Zhong holds 87.4472 per cent of NONGFU SPRING CO., LTD. 's shares, of which 17.8634 per cent are held directly and 69.38 per cent indirectly through Yangshengtang, while his other listed company, Wantai Bio, holds 83.56 per cent directly or indirectly before the listing.

However, market participants are also worried that as NONGFU SPRING CO., LTD. 's chief "speaker", Zhong Mengli's management style tends to be more inclusive. According to the prospectus, the 65-year-old Zhong Mengli is responsible for the front-line management of NONGFU SPRING CO., LTD. and has sole power. responsible for the company's overall development strategy, business planning, major decisions, as well as direct management of brands, sales and human resources.

On the other hand, Guo Zhen, deputy general manager and head of overall production and operation of NONGFU SPRING CO., LTD., is 62, Zhou Li, head of product development and quality, 48, Liao Yuan, 49, and Zhou Zhenhua, the youngest head of finance and investment, is also 43.

At the same time, Zhong's successor has not been reported so far, and NONGFU SPRING CO., LTD. has not introduced external managers. A no longer young team, want to become a century-old enterprise, still need more talent reserve.