Two consecutive companies knocked on the door of IPO conjecture about the future market space of flavors and fragrances

Two consecutive companies knocked on the door of IPO conjecture about the future market space of flavors and fragrances

2023-12-06 19:11 Author: Hu Mengran Zhang Zhi Source: China Times

China's flavor and fragrance market is in a period of rapid development, and the market scale is expanding. In the past two years, five companies, Xinhua Co., Ltd., Covestro Co., Ltd., Huaye Fragrance, Tianmei Biotechnology Co., Ltd. and Yaxiang Co., Ltd., have been successfully listed.

It is understood that China's natural spice plants have complete varieties and rich resources. In addition, it also has a variety of unique varieties such as cinnamon and star anise, as well as natural flavor varieties that have unique advantages in the world. With the growing demand of the domestic flavor and fragrance industry, the pace of enterprises to the capital market is accelerating.

Recently, Green Biotechnology Co., Ltd. (hereinafter referred to as "Green Biotech") updated its prospectus on the Shenzhen Stock Exchange, and Tongye Wanxiang Technology Group Co., Ltd. (hereinafter referred to as "Wanxiang Technology") also officially launched the A-share IPO process.

Wanxiang Technology and Green Biotech hit the market again

According to public information, Wanxiang Technology was established in 2001 and is mainly engaged in the research and development, production and sales of spices. The company has established business relations with Firmenich, Givaudan, IFF, Manne, Symrise and other top ten international flavor and fragrance companies, as well as Colgate, Procter & Gamble, Mars Wrigley and other internationally renowned enterprises, and its products are sold to more than 30 countries and regions on six continents.

But Wanxiang Technology's road to listing was not smooth. In December 2020, Wanxiang Technology submitted an IPO application for the GEM for the first time, but failed to pass because the company's actual controller, then senior executives, and core technical personnel were involved in 9 bribery matters. According to the prospectus, Wanxiang Technology's revenue in 2019, 2020, and 2021 will be about 1.178 billion yuan, 1.218 billion yuan, and 1.415 billion yuan respectively; The net profit was 117 million yuan, 77.5027 million yuan and 75.8947 million yuan respectively.

The reporter of "China Times" sent a letter to understand the relevant issues of Wanxiang Technology's re-listing this time, but did not receive a response as of press time.

Another company that hit the market, Green Biotechnology, is one of the spice companies that entered the international spice market earlier in China. In more than 20 years of development, Green Biotech has successfully entered the global supply chain system of Givaudan, Firmenich, IFF, Symrise, P&G and other internationally renowned fragrance and flavor companies and daily chemical companies, with a sales network covering North America, Europe and other markets.

According to the prospectus, Green Biotech achieved a total revenue of 541 million yuan in the first three quarters of 2023, a year-on-year increase of 15.38%; Operating profit increased by 47.36% year-on-year to 81 million yuan, and net profit increased by 45.62% year-on-year to 70 million yuan. The growth rate of the company's net profit is faster than the growth rate of revenue, mainly because the company's raw material costs have decreased with the decline in upstream raw material prices.

In December 2020, Green Biotech submitted its first listing application materials, but withdrew it in February 2021.
Although China's flavor and fragrance industry has continued to develop in recent years, there is still a certain gap from the perspective of the global market. According to data disclosed by IAL Consultants, in 2019, the top six international flavor and fragrance companies (Givaudan, IFF, Firmenich, Symrise, Wild Ingredients, and Manne) accounted for more than 70% of the global flavor and fragrance industry, and CR10 (the market share of the top 10 companies) was as high as 80%.

Zhang Yue, chairman of Aoyou International, told the China Times that in terms of technology research and development capabilities, international leading enterprises have strong technology research and development capabilities and have mastered the varieties and technologies of key flavors, while China's flavor and fragrance companies are relatively weak in terms of R&D investment and core technology. In addition, international leading enterprises have established a wide range of market channels in the world, while China's flavor and fragrance enterprises need to be strengthened in overseas market expansion.

Broad market space

Policy support has also injected a boost into the development of the industry. In 2021, the China Flavors, Fragrances and Cosmetics Association promulgated the "14th Five-Year Development Plan for the Flavor and Fragrance Industry" to increase R&D investment support policies; In the same year, the National Development and Reform Commission revised the "Guiding Catalogue for Industrial Structure Adjustment" to encourage the artificial cultivation and development of understory resources such as spices and wild flowers. In June last year, the Ministry of Industry and Information Technology promulgated the "Guiding Opinions on Promoting the High-quality Development of Light Industry", pointing out that it is necessary to study, formulate and release the first batch of technological innovation roadmaps in key areas for the weak links in the industry such as "morning fermentation and manufacturing of flavors and fragrances".

Zhang Yue pointed out that the advantages of China's flavor and fragrance industry are mainly reflected in the following aspects: first, policy support, in recent years, the Chinese government has given policy support to the flavor and fragrance industry, encouraging enterprises to increase R&D investment and enhance industrial competitiveness; The second is market demand, with the rapid development of China's economy and the improvement of consumption level, the demand for flavors and fragrances is also growing, providing a broad market space for local enterprises; The third is the effect of industrial agglomeration, China's flavor and fragrance enterprises have formed industrial agglomeration in the region, which is conducive to cooperation and competition between enterprises and improves the competitiveness of the entire industry; In addition, it can be observed that in the past two years, the number of listed companies in China's flavor and fragrance industry has increased, and the intervention of the capital market will help enterprises expand their scale and improve their technical level.

Zhang Xuefeng, a financial commentator, also told the China Times that China is a high-profile flavor and fragrance market, and local companies are catching up in the capital market. Compared with international leading enterprises, China's flavor and fragrance industry also has certain advantages, firstly, the Chinese market is growing rapidly, and the market scale is expanding, providing a broad market space for domestic enterprises; Secondly, domestic enterprises have the advantage of localization, better understand the needs and preferences of Chinese consumers, and can better meet market demand. In addition, domestic enterprises also have cost advantages, and the production cost is relatively low, which is conducive to improving competitiveness. In recent years, domestic enterprises have gradually focused on strengthening R&D investment and technological innovation to improve product quality and added value.

According to the 2023 White Paper on the Development of China's Flavors and Fragrances Industry, the size of China's flavors and fragrances cosmetics market will only grow from 42.7 billion yuan in 2018 to 56 billion yuan in 2022, with a compound annual growth rate of 7%. The market has huge growth potential in the future, and it is expected to reach 92 billion yuan in 2027, with a compound annual growth rate of 11.4%.

Zhang Xuefeng suggested that in order to promote the development of the current flavor and fragrance industry, we can start from the following aspects: first, strengthen policy support, encourage enterprises to strengthen R&D and technological innovation, and improve product quality and added value; secondly, strengthen international cooperation and exchanges, introduce advanced technology and experience, and improve the technical level and competitiveness of domestic enterprises; In addition, by strengthening industry self-discipline and standardizing market order, we will promote the healthy development of the flavor and fragrance industry. At the same time, enterprises should also be encouraged to focus on brand building and marketing to improve brand awareness and reputation.