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At the opening of the market on July 23, Heilongjiang Guozhong Water Co., Ltd. (hereinafter referred to as "Guozhong Water") hit the daily limit, and closed at 1.88 yuan per share, with a total market value of 3.034 billion yuan. Earlier on the evening of July 22, Guozhong Water issued an announcement stating that it intends to indirectly acquire Beijing Huiyuan Food and Beverage Co., Ltd. (hereinafter referred to as "Beijing Huiyuan") by paying cash. After the acquisition is completed, it will become the controlling shareholder of Beijing Huiyuan, which also means that Beijing Huiyuan may be listed on the A-share market. However, even if it is listed on the A-share market, Beijing Huiyuan still faces the pressure of performance betting, and its non-net profit after deducting non-recurring items must meet the standards this year and next. Industry analysts pointed out that behind Beijing Huiyuan's curved listing this time, what is more worthy of attention is the brand reshaping and market expansion, and the problems of its model, team, and product aging need to be solved urgently.

Switch to A-shares

In an announcement on July 22, Guozhong Water Group said that it is planning to acquire the shares of Zhuji Wenshenghui Self-Owned Capital Investment Co., Ltd. (hereinafter referred to as "Zhuji Wenshenghui") held by Shanghai Yongrui Enterprise Management Partnership (Limited Partnership) (hereinafter referred to as "Shanghai Yongrui") in cash. After the acquisition is completed, Guozhong Water Group will hold a total registered capital of Zhuji Wenshenghui of no less than 816 million yuan, accounting for no less than 51% of its registered capital, thereby becoming the controlling shareholder of Zhuji Wenshenghui and the controlling shareholder of Beijing Huiyuan.

In 2007, "Huiyuan Juice" was listed in Hong Kong and set the record for the largest IPO of the year on the Hong Kong Stock Exchange, but was later delisted from the Hong Kong Stock Exchange in 2021 and went bankrupt for reorganization. Zhuji Wenshenghui is a holding platform company established by Shanghai Wensheng Asset Management Co., Ltd. (hereinafter referred to as "Wensheng Asset") to participate in the reorganization of Beijing Huiyuan, and does not engage in other business operations.

In June 2022, the Beijing No. 1 Intermediate People's Court ruled to approve Huiyuan's reorganization plan. Wensheng Asset, as a reorganization investor, injected 1.6 billion yuan in funds and became the controlling shareholder of Beijing Huiyuan. After the reorganization, Beijing Huiyuan will hold the core trademark brand and production assets of "Huiyuan Juice". In the official announcement, Wensheng Asset stated that "part of the funds will be used to pay Huiyuan's bankruptcy expenses and repay small debts, and more than 90% of the funds will be used to upgrade and strengthen Huiyuan's production and operations." At that time, Wensheng Asset also stated that it would design the best securitization plan for Beijing Huiyuan and strive to achieve A-share listing within three to five years.

According to the official website of Guozhong Water, it is a public company listed on the Shanghai Stock Exchange. Its main business covers municipal water supply, sewage treatment, new urban distributed water supply and drainage integration, engineering and technical services, green sustainable energy and project construction in the entire environmental protection industry. At the same time, the company is one of the few comprehensive environmental protection listed companies in the domestic A-share market with a complete industrial structure. As of now, Guozhong Water has 29 business companies, 9 sewage treatment companies, 2 clean energy companies and 2 engineering service companies.

As for the reason for the acquisition, Guozhong Water said that Huiyuan is a well-known domestic brand of juice drinks, and the Beijing Huiyuan restructuring plan is a rare star restructuring project in recent years. This project has high recognition in the capital market, and the brand value and scalability are strong. The purchase of shares will enhance the company's overall profitability, benefit the company's long-term development, and comply with the company's transformation plan to modern agriculture and healthy food.

Performance betting

According to the gambling clause promised by Wensheng Asset, Beijing Huiyuan's audited cumulative net profit after deducting non-recurring items from 2023 to 2025 must be no less than 1.125 billion yuan, that is, the average annual net profit after deducting non-recurring items must be no less than 375 million yuan. This performance level is much higher than that of Guozhong Water, whose annual performance is usually less than 100 million yuan.

According to the financial data disclosed by Beijing Huiyuan at the beginning of the year, the company achieved operating income of 2.86 billion yuan and non-net profit of 397 million yuan in 2023, a year-on-year increase of nearly 1,885%. Judging from the terms of the gambling clause, Beijing Huiyuan has already achieved its 2023 targets.

Zhan Junhao, a well-known strategic positioning expert and founder of Fujian Huace Brand Positioning Consulting, pointed out in an interview with a Beijing Business Daily reporter that whether Beijing Huiyuan can complete the performance bet depends on whether it can effectively implement strategies such as brand rejuvenation, product innovation and channel expansion to improve profitability. If the performance bet is not completed, according to the agreement, Wensheng Assets must compensate or repurchase shares of Guozhong Water, which will affect the investment return of Guozhong Water.

As the acquirer, Guozhong Water has been under great pressure in the past two years. The financial report shows that Guozhong Water's net profit attributable to the parent company in 2021 and 2022 was approximately -90.55 million yuan and -115.8 million yuan respectively, while its total net profit attributable to the parent company from 2016 to 2020 was only 94.7 million yuan, more than twice the net profit attributable to the parent company in five years.

On December 27, 2022, Guozhong Water announced that it intends to acquire 31.48% of the shares of the holding platform company established by Wensheng Assets to participate in the reorganization of Beijing Huiyuan. After the acquisition, the company indirectly holds 18.89% of Beijing Huiyuan's shares, and the transaction amount is 850 million yuan. In April and July 2023, Guozhong Water again acquired the equity of Zhuji Wenshenghui held by Shanghai Yongrui twice, and its indirect shareholding ratio in Beijing Huiyuan increased to 21.89%. As of the latest disclosure date, the company has a total of 36.49% of Zhuji Wenshenghui's shares and indirectly holds 21.89% of Beijing Huiyuan's shares.

By 2023, Guozhong Water will realize a net profit of 30.0386 million yuan, a year-on-year increase of 125.94%. Among them, the investment in Wenshenghui confirmed an investment income of 82.8363 million yuan, accounting for 275.77% of the net profit attributable to the parent company in the current period, which is the key to the company's turnaround.

Zhu Danpeng, a Chinese food industry analyst, said that Beijing Huiyuan was one of the first beverage companies in China to build a full industry chain, and its brand effect, scale effect and complete supply chain were the best in the same period. In the past two years, high-quality juice has shown signs of recovery, which is also a core reason why many investment institutions have taken a fancy to Beijing Huiyuan.

Juice Resuscitation

Medium- and high-concentration juices are experiencing a "second spring" of development. The 2024 China Beverage Industry Insight Report released by Nielsen IQ shows that in 2023, the revenue of the seven major categories of domestic beverages will be 304.1 billion yuan, a year-on-year increase of 6.2%, of which juice revenue will account for 15.1%, a year-on-year increase of 8.8%, which is faster than the overall market.

Zhan Junhao said that in recent years, Beijing Huiyuan has faced the challenge of brand aging and needs to be revitalized through innovative marketing strategies, product upgrades and channel optimization. At the same time, Beijing Huiyuan is also working hard to improve production efficiency and product quality to cope with market competition. This restructuring and listing plan will be an important opportunity for Beijing Huiyuan to revitalize its brand and expand its market share.

At the first round of distributor conference after the restructuring held in March 2023, Huiyuan Juice Chairman Ju Xinyan revealed that Beijing Huiyuan's sales in the first two months of 2023 were nearly 800 million yuan, a year-on-year increase of 20%, and total profits were nearly 100 million yuan, a year-on-year increase of 86%, of which the 100% pure juice business increased by 52%.

Although Huiyuan Juice has always occupied the domestic medium- and high-concentration juice market, its overall market share is declining. Nielsen data shows that Huiyuan Juice's domestic market share was 53.4% ​​in 2016, and it has dropped to around 15% in 2020. According to data from the China Business Industry Research Institute, in January 2022, Huiyuan Juice's market share in the domestic juice beverage industry fell to 11%, ranking behind Coca-Cola (China) and Weiquan Foods.

Since last year, the domestic juice beverage market has been fully competitive. In the NFC (non-concentrated 100% juice) track, at the end of last year, Nongfu Spring's NFC juice launched the concept of "freshly squeezed in season", completed the "picking and squeezing can" link in 36 hours, and claimed that "it is only sold one month a year". The financial report shows that in 2023, Nongfu Spring's beverage business, including tea beverages, functional beverages, and juice beverages, accounted for 51.7% of total revenue, surpassing drinking water for the first time. In addition, Coca-Cola's juice brands innocent, Zero Degree Workshop, Chu Orange, and Luckin Coffee are continuing to increase their investment in the NFC juice market.

According to iResearch, NFC juice is a dark horse category in the product structure upgrade of the juice market, and multiple factors drive the category to develop in a positive direction. The NFC juice market is still in the introduction stage, and the growth is gradually entering the fast lane. The industry chain is long and there are many participants. The midstream brand owners are the main players in the industry.

This year, following NFC juice (not from concentrate), HPP juice (cold-pressed fresh juice) has become popular. HPP fruit and vegetable juice (low temperature and high pressure sterilization process) has become a "new favorite" of consumers because it retains the nutrients and natural flavor of fruits and vegetables. It is also called "high cold juice" by netizens. Shopping platform data shows that the sales of HPP red apple juice increased by 400% year-on-year from November 2023 to April 2024, and it was even sold out many times.

Zhu Danpeng said that Beijing Huiyuan faced many obstacles in its future development due to the aging of its model, team, and products, as well as the poor market expansion in South China and East China. After two years of hard work, Beijing Huiyuan has made many innovations and upgrades, selling its products online and achieving integrated operations offline. After the iteration speed has been accelerated, Beijing Huiyuan will do better in the future by relying on its original position in the medium and high concentration juice industry and the empowerment of brand effect.

Regarding whether the performance bet can be completed and the future development direction, a Beijing Business Daily reporter sent an interview letter to Beijing Huiyuan via email, but no reply was received as of press time.

Beijing Business Daily reporter Kong Wenxie