On December 12, Swallow House (01497.HK) officially listed on the Hong Kong Stock Exchange as the “First Stock of Bird's Nest”. On the first day of listing, Swallow House opened more than 9% and closed at HK$9.7 billion, with a total market value of approximately HK$4,515 billion.

Source: Futu

Judging from market feedback, the overall closing increase of IPOs listed during the month was low on the first day, including a breakout situation. Tsubame-house's flat closing performance was also in line with expectations.

Of course, going public is just a starting point. Compared to the IPO debut itself, what is more worth exploring is what kind of investment logic and potential does the House of Swallow actually contain from a long-term perspective.

In my opinion, the details can be interpreted from two directions.

1. “High quality track+superior location” supports high growth

Investment considerations involve many aspects, but one of the most important and consensus-building logics is choosing the right track. Behind this, high-quality tracks often have considerable market space, a good market pattern, etc., and companies that occupy an advantageous position on high-quality tracks are more likely to show high growth.

Overall, Tsubame-no-ya is in line with the investment framework of “high quality track+advantageous location”.

At the racetrack level, in simple terms, China has a broad and long cultural base and consumption history of eating bird's nest. Moreover, now that the standard of living of consumers is improving, they are increasingly pursuing beauty and health, which is gradually creating even greater demand.

According to Frost & Sullivan, in terms of retail sales, the size of China's bird's nest market is expected to increase from 43 billion yuan in 2022 to 92.1 billion yuan in 2027, and will soon grow to a 100 billion level racetrack. Furthermore, by 2022, the total potential and actual market for bird's nest products in China has exceeded 560 billion dollars.

At the location level, intuitively speaking, Swallow House is an established enterprise in the bird's nest industry, as well as a leading enterprise. According to Frost & Sullivan, in terms of retail sales, Swallow House has been the largest bird's nest product company in China for three consecutive years (2020-2022). It also has the highest bird's nest brand awareness in China and the world's largest bird's nest franchise store network. In 2022, its share of the global market was 4.1%, higher than 2.6% in second place.

Also, judging from the segmentation characteristics of the Chinese bird's nest market, the advantageous position that Swallow House has is further highlighted.

First, due to multiple factors such as strict regulations and increased consumer health awareness, traceable bird's nest products are favored by more consumers. The data shows that traceable bird's nest accounts for a share of the overall bird's nest market in recent years, and is expected to reach 43.7% in 2027. In terms of retail sales in 2022, Swallow House is also the largest bird's nest product company in the traceable bird's nest market in China, with a market share of 14.0%.

Looking at it a little further, behind the popularity of traceable bird's nest products, it actually places higher demands on the supply side, including requirements for supply chain management teams or raw material suppliers. This puts new entrants at a disadvantage for a short period of time, giving companies such as Tsubame-no-ya a better chance of sharing the circuit dividends.

Second, there is an obvious “brand effect” in the bird's nest category, and well-known brands of bird's nest products are also more favored by consumers. This is due to the functional attributes of the bird's nest category, which satisfies consumers' pursuit of beauty and health. Consumers are naturally happy to choose well-known brands that are more capable of guaranteeing the quality of their products.

As mentioned above, Swallow House has the highest popularity of the bird's nest brand in China, which also gives it a better chance to share the dividends of the race track.

2. The business model lays the foundation for sustainable development

From another perspective, the business model determines how far an enterprise can go in the future and whether it can continue to grow. On this point, Tsubame-no-ya also has advantages, which are specifically reflected in innovation and profit.

For example, Swallow House continues to promote product innovation based on technology, etc., including innovating cooking processes to create fresh, nutritious and convenient (specially designed for online channels) fresh stew products; innovating and launching bird's nest+ products such as Wanyan-Yuanqi, and bird's nest congee and bird's nest skincare products (which use bird's nest peptides as functional enhancements), thereby continuously improving the consumer experience and extending the value chain of the bird's nest industry.

In other words, Swallow House's product matrix has covered the main product categories in the Chinese bird's nest market to meet the differentiated needs of consumers in different scenarios.

In terms of channels, Swallow House has also closely followed the industry and adopted innovative models, such as establishing an online and offline omni-channel network, launching differentiated products for online channels to cover a larger group of consumers; and establishing a strong customer membership network to maintain direct contact and enhance interaction with consumers in order to increase consumer stickiness and repeat purchases.

More intuitively, performance is the litmus test of a business model.

According to the prospectus, from 2020 to 2022, Swallow House achieved revenue of 1,301 billion yuan, 1,507 billion yuan, and 1,730 billion yuan respectively, with a compound annual growth rate of 15.3%. In the same period, Tsubame-House's total retail sales also grew at a high compound annual growth rate of 12.3%, which was 8.6 percentage points higher than the industry average.

In terms of net profit, in the same period, Tsubame-no-ya's net profit compound annual growth rate was 29.2%, and the net profit margins for the period were 9.5%, 11.4%, and 11.9%, respectively.

In the first five months of 2023, Tsubameshiya achieved revenue of 783 million yuan, an increase of 12.3% over the previous year; net profit of 101 million yuan, an increase of 20.0% over the previous year; and a net profit margin of 12.8%, showing a steady growth trend overall.

Meanwhile, according to Frost & Sullivan, Swallow House's profitability during the track record period was higher than the industry average estimated at 5.0% to 9.0% over the same period.

In view of this, Tsubameshiya's performance has been sustainable. In particular, it has gradually entered a “high profit zone” with its superior business model, generating profits above the industry average.

Back to the essence of business, profit is the real driving force for the development of an enterprise. Profit generation is even more important in the current complex and uncertain market environment, which lays a better foundation for the continued development of Tsubame-no-ya.