Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Smartkarma

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Dali Foods Group / Equity Capital Markets

Dali Foods plans to raise US$1-1.3bn through an issuance of primary shares. We have already covered the main aspects of the deal in our IPO Preview note, which you can find <a href="http://www.smartkarma.com/insights/dali-foods-ipo-preview-a-fast-follower-that-doesn-t-deserve-a-premium" target="_blank">here</a>. <ul><li>There is no doubt that the company has done a commendable job of registering strong growth while its competitors have delivered lukewarm results.</li><li>However, the strategy adopted by the company has been one of copying successful international or domestic products, and then offering its products at a discount. This has gotten the company so far but the under-investment in brand building versus other peers means the business might itself be put at risk by even cheaper competitors.</li><li>The IPO pricing implies a range which is in-line with its peers. We would have been happier with a range that was at a discount, well but then who doesn't like a discount.</li><li>Having said that, with the success of recent consumer IPOs in Hong Kong, we are of the view that the market is happily welcoming consumer stocks, after the financials onslaught throughout the year. Therefore, we would advice investors to bid for the IPO, but beware of the limited upside at the top end. </li></ul>

Dali Foods plans to raise US$1-1.3bn through an issuance of primary shares. We have already covered the main aspects of the deal in our IPO Preview note, which you can find here. There is no doubt that the company has done a commendable job of registering strong growth while its competitors have delivered lukewarm results.However, the strategy adopted by the company has been one of copying successful international or domestic products, and then offering its products at a discount. This has gotten the company so far but the under-investment in brand building versus other peers means the business might itself be put at risk by even cheaper competitors.The IPO pricing implies a range which is in-line with its peers. We would have been happier with a range that was at a discount, well but then who doesn't like a discount.Having said that, with the success of recent consumer IPOs in Hong Kong, we are of the view that the market is happily welcoming consumer stocks, after the financials onslaught throughout the year. Therefore, we would advice investors to bid for the IPO, but beware of the limited upside at the top end. 

Dali Foods IPO: Limited upside at top end for the Fujian based high growth fast follower

Dali Foods plans to raise approximately US$1.5bn through an IPO later this year. Here we aim to take a look at some of the main factors that are likely to impact the deal.<ul><li>Despite a slow down in the Chinese consumer market, and with most of its listed peer seeing significant slow down in their business, Dali Foods still managed to register strong growth in the latest half year and is expected to continue its strong growth, driven by new products.</li><li>However, we are of the view that the company should be trading below its peers' valuation, given the following reasons: 1) Dali a follower and&nbsp;carries&nbsp;little brand value vs leaders, 2) margins risk abound, if it wants to build a top brand, and 3) significant past related party transaction and ownership concentration.</li><li>Further to the point 3 we would like to highlight that despite the company selling primary shares, about 25% of proceeds will be used to pay the Xu&nbsp;family (founder's family) for reorganization prior to listing.</li><li>We have also noted that the company enjoys tax subsidy and government grants. The amount is significant compared to peers and we would make adjustment prior to reaching our valuation for the deal.&nbsp;</li></ul>More details fold below...

Dali Foods plans to raise approximately US$1.5bn through an IPO later this year. Here we aim to take a look at some of the main factors that are likely to impact the deal.Despite a slow down in the Chinese consumer market, and with most of its listed peer seeing significant slow down in their business, Dali Foods still managed to register strong growth in the latest half year and is expected to continue its strong growth, driven by new products.However, we are of the view that the company should be trading below its peers' valuation, given the following reasons: 1) Dali a follower and&nbsp;carries&nbsp;little brand value vs leaders, 2) margins risk abound, if it wants to build a top brand, and 3) significant past related party transaction and ownership concentration.Further to the point 3 we would like to highlight that despite the company selling primary shares, about 25% of proceeds will be used to pay the Xu&nbsp;family (founder's family) for reorganization prior to listing.We have also noted that the company enjoys tax subsidy and government grants. The amount is significant compared to peers and we would make adjustment prior to reaching our valuation for the deal.&nbsp;More details fold below...

Dali Foods IPO preview: A fast follower that doesn't deserve a premium

China

Dali Foods Group Company Ltd. is a snack food and beverage company. The Company is actively expanding its products offering and distributes its products through retailers.

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Dali Foods Group (3799 HK)

Dali Foods IPO: Limited upside at top end for the Fujian based high growth fast follower

Dali Foods plans to raise US$1-1.3bn through an issuance of primary shares. We have already covered the main aspects of the deal in our IPO Preview...

Ke Yan, CFA, FRM

Dali Foods IPO preview: A fast follower that doesn't deserve a premium

Dali Foods plans to raise approximately US$1.5bn through an IPO later this year. Here we aim to take a look at some of the main factors that are...

Ke Yan, CFA, FRM

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