"Snack King" Dali Food is going to be delisted! The reason is... breakfast | stock price | Daliyuan

When I was in school, I hurriedly brought two Daliyuan egg yolk pies and soft bread for breakfast. After school, I went to the supermarket to buy Coke chips and some delicious cookies as snacks, which can be said to be a very representative scene in many people's childhood memories.

In fact, these popular snack brands all belong to a common group - Dali Food Group. Nowadays, facing a broader snack market and increasingly frequent product iterations, this industry leader with over 30 years of history has made new choices in the capital market.

A brand under Dali Food Group. Screenshot of Dali Food Delisting

Recently, Dali Food, which has been suspended for nearly a week, resumed trading and announced that the company plans to initiate privatization and delisting.

The announcement shows that Dali Food and its offeror, Rongshi International, jointly announced that Rongshi International has requested the board of directors to make recommendations to the planned shareholders to privatize Dali Food Company. After the plan takes effect, the offeror will hold approximately 96.11% of the issued shares, the trustee will hold approximately 3.89% of the issued shares, and will withdraw their listing status on the Hong Kong Stock Exchange.

The information in the announcement also shows that the sole director of the offeror Rongshi International is Xu Shihui. As of the announcement date, all issued share capital of Rongshi International is wholly owned by Xu Shihui, who is also the founder and chairman of Dali Food.

For the reasons for the proposed privatization, the announcement believes that due to the low stock price, Dali Food has lost the advantage of maintaining its listing status and has limited equity fundraising ability. The company's shares have been trading in a relatively low price range with limited trading volume, which does not align with the company's position in the industry and does not convey its true value to the market.

From the performance of Dali Food's stock price, it has shown a gradual downward trend since reaching a peak of HKD 6.86 per share in January 2018, staying below HKD 5 per share for a long time, and then dropping to HKD 2.43 per share on June 1 this year.

At the same time, the announcement believes that the poor performance of the stock price also has a negative impact on the company's business development. In addition, the offeror stated that if the proposal is successfully implemented, the group as a private enterprise can gain greater flexibility to make strategic decisions that focus more on promoting necessary business transformation.

The announcement also shows that assuming no further shares will be issued before the record date, and considering the cancellation consideration and survival arrangement of Hui Shihui's shares, it is recommended to pay a maximum cash consideration of approximately HKD 5.707 billion.

Dali Food's 2022 financial report shows that it achieved a revenue of 19.957 billion yuan and a net profit of 2.99 billion yuan for the entire year. Why is Xu Shihui willing to pay nearly twice the annual net profit to achieve privatization? Perhaps we need to start with the "industry position" mentioned by Dali Food.

Screenshot of Dali Food Announcement.

The Story of "Chinese Snack King" Becoming Rich

According to the official website, Dali Food Group was established in 1989 and is located in Hui'an County, Quanzhou, Fujian Province, which is also the hometown of its founder Xu Shihui. Like many young people in that era, Xu Shihui gave up his studies early and went out to work to support his family. Later, he entered a food processing factory to do enough work to make a living.

According to media reports, at that time, Xu Shihui had a roommate who loved snacks very much. Even after finishing his meal, he had to spend money to buy additional snacks. Faced with Xu Shihui's doubts, he said he simply liked to eat snacks. It has been proven that even more than 30 years later, the concept of "eating snacks not because of hunger, but because of greed" still holds true among snack enthusiasts.

More than 30 years ago, this idea sparked a spark in Xu Shihui's heart. The development of the times has responded to his youthful ambition, especially in Quanzhou, where maritime trade is thriving. Xu Shihui decided to put in all his resources and establish a food processing factory, digging the first bucket of gold from consumers who are already able to eat well and are considering "eating well".

Today, Dali Food is rooted in the two major fields of food and beverage, and has several well-known brands under its umbrella, including Dali Garden, Delicious Food, Kebick, Lehu, Heqizheng, Douben Dou, and Meibaochen. But if we delve into its products, we can see that every leading category of Dali Food seems to have a very similar competitor in the industry.

For example, Daliyuan Pai and Haoli You Pai, Kebick Potato Chips vs. Leshi, Pinker Potato Chips, Delicious Food vs. Yizi International, vs. Wang Laoji... As a result, this strategy has been summarized by many commentators as a "follow strategy", which involves choosing popular product models and then launching lower priced replicas.

According to previous media reports, Haolyou from South Korea has become popular in China since the mid-1990s and gradually dominated the market. However, the price of 14 yuan per box was not cheap at that time. In 2002, Xu Shihui launched the Daliyuan Egg Yolk Pie, which was only about two-thirds of the price of Haoliyou, and successfully snatched the market from the Korean giant.

Perhaps before the success stories of Miyuki Ice City and Luckin Coffee capturing the sinking market, Dali Food had already understood the charm of low prices and the value of channels in earlier times. With a keen sense of the market and a grasp of national consumption trends, supplemented by improvements and innovations based on "following", Dali Food quickly rose to the forefront of the industry.

In November 2015, Dali Food went public on the Hong Kong Stock Exchange, becoming the largest IPO of a global consumer goods project and the largest private enterprise IPO on the Hong Kong Stock Exchange that year. At the peak of its stock price, Dali's market value approached the threshold of 100 billion yuan, and Xu Shihui, who had become the "king of Chinese snacks," also rose in value. He has been the richest person in Fujian for many years since 2016.

The New Challenge of Childhood Memory

In the era of rapid progress, the comprehensive penetration of the Internet, the rapid development of science and technology, and the innovation of the industry are constantly testing traditional brands such as Dali Food. Just as it was Zeng Yuqun from the Ningde era who pushed Xu Shihui out of Fujian's richest man position back then, it seemed like a foreshadowing for the turnover of the capital market.

The troubles of Dali Food can be seen from the financial statements. From 2020 to 2022, the company's revenue was 20.962 billion yuan, 22.294 billion yuan, and 19.957 billion yuan, with growth rates of -1.93%, 6.35%, and -10.5%, respectively. The net profit for the same period was 3.849 billion yuan, 3.725 billion yuan, and 2.99 billion yuan, with growth rates of 0.21%, -3.22%, and -19.73%, respectively.

In the context of "consumption upgrading", keywords such as "internet celebrities", "popular products", and "new products" have become the consumption passwords of the younger generation. Faced with issues such as the need for further breakthroughs in product innovation and the inability to rapidly innovate sales channels, many traditional food brands find it difficult to continue to leverage their existing advantages.

But Dali Food is not facing a dead end in bidding farewell to the capital market. Chinese food industry analyst Zhu Danpeng believes that Dali Food's overall development is relatively stable. Although its performance in the past two years has not been impressive, it also has core competitiveness, especially in the lower tier market. "Dali Food still needs to take the path of innovation and upgrading in the future, moving towards high-end cities, seeking product iteration and development, and building a product pyramid matrix, which is of utmost importance."

After the announcement of privatization, Dali Food's stock price surged and ultimately closed with a 28.68% increase on the same day, at HKD 3.5 per share. Meanwhile, due to Xu Shihui and his family owning 85% of Dali Food's shares through a trust, as well as the shares held through the employee equity incentive plan, the actual cost for Xu Shihui to purchase the remaining shares out of his own pocket will not be too high.

In addition, there are also rumors in the industry that Dali Food may go public on the A-share market in the future. Dali Food responded to the media that it has no plans at the moment: "The company will continue to operate its existing business, and Rongshi International has no specific plans to make significant changes to the company's business after the completion of this transaction."