The Zhitong Finance App learned that on December 14, Lancang Ancient Tea (06911), the first stock of Chinese Pu'er tea, officially launched a listing on the main board of the Hong Kong Stock Exchange. It plans to issue 21 million H-shares, of which 2.1 million shares will be publicly sold in Hong Kong and 18.9 million shares will be sold internationally. The issuance pricing range is HK$10.40 to HK$14.16, and is expected to be listed on December 22. This means that the capitalization of China's tea industry has reached an important milestone.

According to Frost & Sullivan's statistics, Lancang Ancient Tea is one of the few tea companies in China with experience in raw material management, product development, production, end customer reach, and member service. The company is a national key leading enterprise in agricultural industrialization. Its products are mainly Pu'er tea, covering black tea, white tea and flavored tea.

The “First Stock” was honored, and the long-term development prospects of Lancang Ancient Tea were well received by the market. According to public information, Lancang Ancient Tea has not applied for full circulation and has received strong support from old shareholders. According to the requirements of Hong Kong's listing rules, 25% of the new shares will be issued. In this launch, Lancang Ancient Tea attracted cornerstone investors, including well-known public funds such as local state-owned equity investment platforms, Harvest Fund, etc., as well as professional investors and industry suppliers in the consumer industry. The subscription amount was about HK$116 million. Assuming that the exercise of over-allotment rights was not taken into account, according to the current pricing range, the percentage of the total number of shares sold was 38.99% to 53.09%, which is at a high level overall. The investor lineup is stable.

Combining favorable factors such as the improvement in macro-consumption and the success of Jingmai Mountain's legacy, many of Lancang Ancient Tea's performance data are impressive. Some market analysts believe that there are clear signs of a recovery in the Hong Kong stock market in the fourth quarter, which is beneficial to the public valuation expectations of Hong Kong stock IPO companies, including Lancang Ancient Tea.

Steady development of diversified product matrices

According to the prospectus, Lancang Ancient Tea has launched three product lines: “1966,” “Tea Mama,” and “Rock Cold.” Its products have been selected as “Top Ten Famous Teas in Yunnan Province” for four consecutive years, and was awarded the title of “Top Ten Green Food Enterprises in Yunnan Province” by the Yunnan Provincial Department of Agriculture and Rural Affairs and other departments in 2022.

According to statistics from Frost & Sullivan, in terms of purchasing volume, Lancang Ancient Tea was the biggest buyer of Jingmaishan ancient tea tree tea during the reporting period. In September of this year, the cultural landscape of the Jingmai Mountain Ancient Tea Forest in Pu'er was officially inscribed on the World Cultural Heritage List. Lancang Ancient Tea is the only tea company officially authorized by Jingmai Mountain to successfully commemorate tea declared as a World Cultural Heritage Site. According to the prospectus, Lancang Ancient Tea has established a strong relationship with major cooperatives in Jingmaishan. It is expected that its brand image and product popularity will further increase, and it will stimulate sales of Pu'er tea products such as the Jingmai series, thereby benefiting the company's performance.

Going back to fundamentals, many of Lancang Ancient Tea's business data also showed a good momentum of development.

In terms of channels, Lancang Ancient Tea has now established an online and offline sales network covering the whole country. Among them, the results of the company's continuous optimization of dealer channels are obvious, and distribution revenue remained stable during the reporting period. As of the final feasibility date of the prospectus, the number of the company's offline dealer stores reached 536, returning to the level of the end of 2021. At the same time, the company also continues to expand to e-commerce platforms such as Tmall and JD by building e-commerce products and deploying logistics supply chains, etc., and is developing experiential e-commerce channels such as Douyin. The company collaborated on live broadcasts with popular celebrities such as former CCTV hosts and well-known anchors in vertical industries. According to live streaming statistics, the total number of GMV broadcasts in the brand system in the past six months exceeded 50 million yuan, helping the brand to “break the circle.” In addition, the company is also deepening cooperation with large customers. Although it is still in the cultivation stage, the channel's revenue in the first half of 2023 increased by about 120% year over year to 6.218 million yuan, which also shows a strong growth trend.

In terms of product line, Lancang Ancient Tea has always used the traditional Pu'er tea series “1966” as the cornerstone of performance. At the same time, with the success of the Pu'er tea category, Lancang Ancient Tea also targeted young consumers and the mass market, and launched “Tea Mama”, a product line focusing on health care. Revenue share continued to rise during the reporting period. Revenue in the first half of this year was 69.9 million yuan, an increase of 32.47% over the same period last year, which is expected to become the next growth point. With the launch of “Rock Cooling” for a new middle class consumer audience, a rich product matrix and diverse product portfolio may be an important path for the company to open up incremental market space in the future.

The initial listing leads the development of the industry

According to the prospectus, the company's future plans include: (1) approximately 35.0% or HK$65 million to establish modern logistics and warehousing centers and improve existing production workshops; (2) approximately 27.0% or HK$50.2 million to establish sales channels; (3) approximately 18.0% or HK$33.4 million for brand building and product marketing; (4) approximately 5.0% or HK$9.3 million for strategic investment and acquisition opportunities in the tea industry; (5) about 5.0% or HK$9.4 million to further enhance IT infrastructure and R&D capabilities; and (6) Approximately 10.0%, or HK$18.6 million, was set aside for working capital and other general corporate purposes.

Industry insiders believe that the above fund-raising project is conducive to deepening the Lancang Ancient Tea Moat. Judging from the prospectus, Lancang Ancient Tea's core competitive advantages include high brand awareness, unique production processes and sound R&D capabilities, high-quality raw material supply and abundant tea inventory, and a complete sales network covering all channels. The above fund-raising projects will have a synergistic effect on its production and R&D capabilities, sales channel construction, and brand and product awareness raising. Furthermore, the capital and market endorsement brought about by the listing will also help the company achieve high-quality raw material layout and comprehensive operation, and even make great strides in the future, and help it become a leader in the Chinese tea industry.

It is worth mentioning that according to public data, since this year, 60 IPOs have been successfully listed on the Hong Kong Stock Exchange; entering the fourth quarter, there are clear signs of recovery in Hong Kong stocks. Of these, none of the 7 IPOs listed in November broke on the first day of listing. Some analysts believe that this is a favorable sign for stock prices for companies such as Lancang Ancient Tea that rushed to the market at the end of the year.