“Wherever the Chinese go, they can find a way to grow some food.”

As the “growing love” of the Chinese people becomes more and more intense, bonsai vegetables also seem to have become a “good business” in contemporary society.

According to Frost & Sullivan's report, sales revenue of potted vegetables and agricultural products increased from 1,521 billion yuan in 2017 to 4,069 billion yuan in 2022, with a compound annual growth rate of about 21.8%.

In the future, with the increasing popularity of potted vegetables and agricultural products in China, the market is expected to show an upward trend. Sales volume may reach 484 million pots in 2027, with a compound annual growth rate of about 15.1%. Sales revenue is also expected to increase to $9.692 billion in 2027, with a CAGR of about 19.0%.

Under the double-digit market growth rate, related enterprises are also becoming more and more active in the capital market.

On November 28, the official website of the Hong Kong Stock Exchange revealed that Fujing China Holdings Limited (“Fujing China” for short) passed a listing hearing on the main board of the Hong Kong Stock Exchange, and that Junfu Finance was its sole sponsor. Subsequently, the company also announced on the Hong Kong Stock Exchange that the prospectus date is November 30 to December 5, and that it plans to sell 110 million shares. It is expected to be listed on the Hong Kong Stock Exchange and the Hong Kong Stock Exchange on December 8.

According to the Zhitong Finance App, this is not the first time the company has come into contact with the capital market. In 2015, Fujing China was listed on the new third board under the name “Fujing Agriculture”, but it was delisted in May 2019. Subsequently, the company first submitted a listing prospectus to the Hong Kong Stock Exchange in February 2021. So far, the company has submitted five statements to the Hong Kong Stock Exchange.

Small potted vegetables = high Māori business?

As one of the major vegetable producing provinces in China, Shandong Province has a long history of vegetable cultivation and a large greenhouse area, providing a foundation for the development of potted vegetables and agricultural products.

Using regional advantages as the soil for growth, Fujing China originated in Shandong Province. The company began growing and selling potted vegetable agricultural products in Laixi, Qingdao, Shandong Province in 2012, and began large-scale production of potted vegetable agricultural products before 2016. During the track record period, the company's products were promoted and sold under the core brand “Fujing Agriculture”, which included 29 varieties of potted vegetable agricultural products, including chrysanthemum, rapeseed, bitter chrysanthemum, rapeseed, mountain celery, and black cabbage.

The water is big, and so is the fish. Since its development, Fujing China has grown into the largest producer of potted vegetables and agricultural products in Shandong Province.

According to prospectus data, in terms of sales revenue in 2022, Fujing China is the largest producer of potted vegetables and agricultural products in Shandong Province, with a market share of 14.8% in Shandong Province; in 2022, the company's sales revenue was 127 million yuan, accounting for about 3.1% of the total sales revenue of Chinese potted vegetable producers, and less than 0.01% of the total sales revenue of Chinese vegetable producers.

As of the last practical date, the company had three planting bases for growing potted vegetables and agricultural products, including the Laixi base, the Xi'an base and the Dalian base, covering a total area of about 431,605 square meters. There are 140 greenhouses in the planting base, with a total construction area of 155,401 square meters. To ensure quality and meet relevant safety requirements, all potted vegetables and agricultural products are grown in greenhouses at the company's planting site.

It is worth noting that judging from performance, Fujing China's performance in recent years has mainly fluctuated due to the impact of the COVID-19 pandemic.

According to prospectus data, the company's revenue increased to 155 million yuan in 2021 due to 121 million yuan (RMB, same below) in 2020, then declined to 127 million yuan in 2022 due to the impact of the epidemic. In the first five months of 2023, the company achieved revenue of 56 million yuan, an increase of 86.1% over the previous year. From 2020 to 2022 and the first five months of 2023, the company achieved profit of 43.778 million yuan, 47.303 million yuan, 31.812 million yuan and 18.37 million yuan respectively.

However, even with market turmoil, the average price of the company's potted vegetables and agricultural products remained unchanged at RMB 15.1 during the track record period, because considering the uncertainty brought to China's vegetable sales market and business environment by the 2020 to 2022 pandemic, Fujing China decided to maintain product prices at a stable level during the record period.

Although the performance of the two core financial data, revenue and net profit, has fluctuated, Fujing China's profit level has remained at a high level.

According to prospectus data, from 2020 to the first 5 months of 2023, the company's gross margins were 44%, 42.4%, 41.5%, and 39.9%, respectively; net interest rates for the period were 36.1%, 30.5%, 25.1% and 32.7%, respectively. Although performance remains volatile, the overall level of profit remains at a high level.

As you can see, small potted vegetables can also be used as high-Māori businesses.

There is no shortage of limitations in development

Although potted vegetables have a strong financial absorption effect, there is still no shortage of development problems in Fujing China.

Among them, the most obvious drawbacks are “major customer dependency” and “business regional limitations.”

According to reports, Fujing China's main customers are distributors, mainly engaged in the wholesale of vegetable products and mainly selling potted vegetables and agricultural products to end customers in their respective designated regions. Each distributor is responsible for an exclusive area to avoid cannibalism and unfair competition among distributors.

According to prospectus data, from 2020 to the first 5 months of 2023, Fujing China's total revenue from the five major customers was 68.1 million yuan, 103 million yuan, 85.1 million yuan, and 38.7 million yuan respectively, accounting for 56.1%, 66.3%, 67.3% and 68.8% of the company's total revenue, respectively, with a high concentration of customers. Among them, total revenue from the largest customers was $18.6 million, $25.3 million, $20.9 million, and $9.5 million, respectively, accounting for 15.3%, 16.3%, 16.5% and 16.8% of total revenue.

With such high customer concentration, the company also confessed risk in the prospectus that if any major distributor drastically reduces purchase orders with the company or terminates business relationships with the company, the company may not be able to obtain orders from other existing customers or new customers on similar terms to replace lost sales in a timely manner, or even be completely unable to obtain orders. Under such circumstances, the company's business, operating performance, financial situation and prospects may be significantly adversely affected.

Meanwhile, Fujing China's business is also mainly concentrated in Shandong Province. According to prospectus data, in 2020 and the first 5 months of 2023, the company's revenue from Shandong Province accounted for about 87.1%, 91.2%, 90.3% and 92.5% of total revenue, respectively. From this, it can be seen that the company's operations are mainly located in Shandong Province.

Due to the concentration of earnings, any adverse development of the economic conditions, local government policies and regulations, or business environment in Shandong Province may have a significant adverse impact on the company's business, financial situation and operating performance.

The above problems have also clearly revealed the development limitations of a prosperous China. In view of this, the company will also focus on expanding planting capacity for future development. The company disclosed in its prospectus that it plans to raise capital through listing to build or upgrade greenhouses in Jinan, Laixi, Xi'an, Langfang, Dalian and other places. In addition, the company is also planning to establish a new organic substrate production base.

In summary, as far as Fujing China is concerned, although small potted vegetables are a high-margin business, the company still needs to further expand its competitive advantage by building scale barriers due to excessive dependence on major customers and the development limitations of Shandong.