Dry Ditch Carp" Golden Arowana: How to Save Itself?
Golden Dragon Fish, a major foreign-funded enterprise primarily engaged in the business of rice, flour, and oil, saw its stock price rapidly rise to a historical high of over 140 yuan per share within just three months after listing on the Growth Enterprise Market in October 2020.
At one point, its market value exceeded 780 billion yuan.
Along with Kweichow Moutai, Nongfu Spring, and Haidilao, it was jokingly referred to by investors as one of the "Four Divine Waters" in the capital market.
However, over the next three years, the stock price of Golden Dragon Fish began to plummet, once falling below 25 yuan.
As of the closing on September 19th, Golden Dragon Fish's stock closed at 25.81 yuan per share, with a total market value of 139.9 billion yuan, a drop of over 80% from its historical high, and a market value evaporation of over 640 billion yuan.
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Faced with the significant devaluation of its market value, in August 2024, Golden Dragon Fish issued an announcement that the controlling shareholders voluntarily extended the lock-up period for the pre-IPO restricted shares by one year, attempting to restore investor confidence.
However, as the "oil Moutai" halo gradually faded, investors began to realize that, although it once stood shoulder to shoulder with Moutai, Haidilao, and Nongfu Spring on the pedestal, Golden Dragon Fish's profitability has always been weak.
For Golden Dragon Fish, how to improve profitability and show more room for imagination to the capital is an urgent problem to be solved.
Low profitability is actually a common problem for large grain and oil enterprises.
The industry mainly adopts a business model of thin margins and high sales volume, and Golden Dragon Fish is no exception.
Chairman Guo Kongfeng once stated that the business with high volume and low profit has a high competitive barrier, which can reduce the chances of other potential competitors entering the industry.
However, the disadvantages are also obvious.
Due to the lack of control over the cost side and the lack of pricing power on the sales side, Golden Dragon Fish is particularly passive in dealing with price fluctuations in the upstream and downstream.
The low gross margin moat has become precarious.
In 2023, Golden Dragon Fish experienced its first annual revenue decline after going public, a decrease of 2.32% to 251.524 billion yuan.
At the same time, Golden Dragon Fish's net profit has declined for the third consecutive year, with a decrease of 5.43% to 2.848 billion yuan in net profit attributable to the parent company.
As a company whose main business is rice, flour, and edible oil, the raw material cost of Golden Dragon Fish's products accounts for more than 90% of the main business cost, and most of them are cyclical raw materials such as soybeans, wheat, and oil seeds.
Taking soybeans, which have the highest proportion, as an example, the market price has fallen back to the level at the end of 2020 after reaching a high of nearly 6,000 yuan per ton in mid-2022.
According to the latest data from the National Bureau of Statistics in early September 2024, the market price of soybeans is 4,427.2 yuan per ton.
In theory, as the raw material price falls, it is beneficial to the improvement of Golden Dragon Fish's product profitability.
In the first half of 2024, the downward trend of Golden Dragon Fish's profits was reversed, with a year-on-year increase of 13.57% to 1.097 billion yuan in net profit attributable to the parent company.
However, according to the company's semi-annual report, due to the price decline squeezing the profit space of catering and food industry channel products, the overall profit of Golden Dragon Fish's kitchen food has slightly decreased year-on-year, especially the flour business has suffered losses.
In the first half of 2024, the total profit of Golden Dragon Fish's kitchen food business, including edible oil, rice, and flour, decreased by 8.11% year-on-year to 1.08 billion yuan.
At the same time, affected by weak market demand, fierce competition, and low prices of by-products, the business's operating income decreased by 5.24% year-on-year to 69.674 billion yuan, resulting in a year-on-year decrease of 7.78% in the total operating income to 109.478 billion yuan.
On the other hand, because rice, flour, and edible oil have the attribute of rigid demand, the state will introduce policies to control the prices of such materials.
Especially for foreign-funded enterprises like Golden Dragon Fish, even with a high brand value, it is difficult to pass on the pressure of rising raw material prices to downstream through price increases.
The combination of various factors has made it increasingly difficult for Golden Dragon Fish to make money in recent years, and the gross profit margin has declined sharply.
From 2020 to 2023, Golden Dragon Fish's gross profit margin continued to decline, at 12.33%, 8.18%, 5.68%, and 4.83% respectively.
What is even more difficult to ignore is the declining net profit margin of Golden Dragon Fish.
From 2020 to 2023, the net profit margin of Golden Dragon Fish was 3.37%, 1.98%, 1.21%, and 1.11%, respectively, and in the first half of 2024, this figure further decreased to 0.94%.
In comparison, in the first half of 2024, the net profit margins of the other "three divine waters" Kweichow Moutai, Haidilao, and Nongfu Spring were 52.70%, 24.48%, and 26.88%, respectively.
Golden Dragon Fish seems to have gradually realized this strategic flaw and began to try to enter the high-end oil market.
In the 2024 semi-annual report, Golden Dragon Fish stated that branding and high-end products will be the focus of industry competition in the future.
Therefore, Luhua Group, which mainly focuses on high-end edible oil, has become a target that Golden Dragon Fish is optimistic about.
According to data from the National Food and Strategic Reserves Bureau, in China's edible oil market, the three major brands of Golden Dragon Fish, COFCO Group's Fortune, and Luhua together account for 61% of the market share, with market shares of 39.0%, 15.3%, and 6.7%, respectively.
Recently, the three giants have further carried out in-depth strategic cooperation.
In September 2024, Golden Dragon Fish announced that the company and its related party, Hong Kong Jiayin, planned to increase their capital in Luhua Group by 2.29 billion yuan and 3.279 billion yuan, respectively, totaling 5.569 billion yuan.
Hong Kong Jiayin is a controlling shareholder of Golden Dragon Fish, with a 51% stake in Fengyi Hong Kong, and the remaining 49% of the shares are held by COFCO Group, China's largest grain enterprise.
If the transaction is completed, Golden Dragon Fish and its related party Fengyi Hong Kong will hold approximately 18.95% of Luhua Group's shares, and COFCO Group will hold approximately 7.69% of Luhua Group's shares.
In fact, the origins of Golden Dragon Fish, COFCO, and Luhua go back a long way.
Data shows that since the 1990s, Golden Dragon Fish's controlling shareholder, Yihai Kerry, invested in Luhua Group, and Hong Kong Jiayin was set up by Fengyi International and COFCO Group at that time to invest in Luhua.
Thanks to the investment from Yihai Kerry and COFCO Group, Luhua Group has also grown rapidly, breaking the Chinese edible oil market dominated by "foreign capital" Yihai Kerry and "state-owned enterprise" COFCO, gradually forming a tripartite market pattern.
According to Luhua Group's official website, the company's annual production capacity is 1.5 million tons, the annual production capacity of condiments is 300,000 tons, and the annual processing capacity of rice and flour is 500,000 tons.
In 2023, the brand value of Luhua reached 47.582 billion yuan.
It is worth mentioning that in this Golden Dragon Fish investment transaction announcement, Luhua's financial situation was disclosed for the first time - with revenue less than one-tenth of Golden Dragon Fish, Luhua has achieved net profit close to that of Golden Dragon Fish.
In 2023, Luhua Group achieved a revenue of 18.629 billion yuan and a net profit of 2.746 billion yuan, with a net profit margin of 14.74% for the period, which shows that its "wealth-creating" ability is indeed much better than that of Golden Dragon Fish.
Insiders revealed that this Golden Dragon Fish's capital increase in Luhua Group is not only a capital-level cooperation, but the two sides also plan to carry out in-depth cooperation in various aspects such as technology research and development, raw material procurement, and market marketing.
Recently, there have been rumors that Golden Dragon Fish and Luhua are secretly developing a "black technology" edible oil, which is not only delicious but also has the effects of reducing fat and protecting the liver.
Although neither of the two companies has responded to this, their cooperation is bound to help Golden Dragon Fish's high-end strategy.
However, facing the historical low secondary market price of Golden Dragon Fish, it is difficult to break the current predicament with the story of rice, flour, and oil alone.
In recent years, Golden Dragon Fish has been active in business diversification, developing new high-growth and complementary businesses on the basis of its original business.
In the 2024 semi-annual report, Golden Dragon Fish stated that the company's product line has gradually expanded to various fields such as condiments, yeast, daily chemical products, plant-based meat, and central kitchen, with a particular focus on the condiment field, and has now established a dedicated condiment business department.
Public information shows that as early as 2015, Golden Dragon Fish entered the condiment track by introducing the "Marumura" brand, acquired Shanxi Liangfen Vinegar Industry in 2019, established a peanut sesame business department in 2020, and invested in Guangdong Guangweiyuan the following year, gradually building a condiment business structure.
However, the condiment track is also highly competitive.
With leading brands such as Haidilao, Qianhe, Chuangbang, and Lee Kum Kee already occupying consumer minds, it is quite difficult for Golden Dragon Fish to capture the market.
Moreover, the condiment business is also severely affected by the price of raw materials such as soybeans, and is still troubled by cost control problems.
In addition to the condiment business, the central kitchen project is also one of the business segments that Golden Dragon Fish has been focusing on in recent years.
In 2018, Golden Dragon Fish established a wholly-owned subsidiary, Fengchu (Shanghai) Catering Management Co., Ltd., and began to lay out the pre-made dish track.
According to relevant reports, Golden Dragon Fish has successfully put into production five central kitchen parks in Hangzhou, Xingping, Zhoukou, Langfang, and Chongqing.
The "2023 China Pre-made Dish Industry Development Blue Book" shows that it is expected that the scale of China's pre-made dish market will exceed one trillion yuan in 2026.
The trillion-dollar blue ocean naturally attracts countless players to come and grab a share, but unlike the industry's production mode of pre-made dishes, Golden Dragon Fish is more like an integrator of resources and a seller of water.
According to Golden Dragon Fish, the company is trying to create an ecosystem of central kitchen parks.
It can not only process central kitchen products by itself but also introduce other central kitchen processing enterprises and related enterprises in the industry chain upstream and downstream, and can achieve resource sharing in various aspects such as raw material procurement, experimental research and development, product storage, logistics transportation, sales channels, and public supporting facilities in the park.
The goal is ambitious, but the reality is that after many years, the development of Golden Dragon Fish's new business is still very slow, and its impact on the company's overall performance is minimal.
In the first half of 2024, Golden Dragon Fish's other business segments achieved a revenue of 838 million yuan, accounting for only 0.77% of the total revenue.It is worth mentioning that since 2024, the brand "Jin Long Yu" has been embroiled in negative public opinion, including the fabrication of Wuchang rice and the chaos of mixing kerosene, leading to a significant decline in brand reputation.
This has also led to doubts about whether "Jin Long Yu" has expanded too rapidly and neglected internal management.
Amidst falling stock prices and reputation, "Jin Long Yu," which has not yet resolved its profitability dilemma, may already be like a fish out of water.