Oct. 17 (NBD) – China Feihe Limited (Feihe), an infant formula producer backed by Morgan Stanley Private Equity Asia, is staging a strong comeback on the capital market six years after delisting from the New York Stock Exchange.

The company has been approved to launch an IPO (initial public offering) on the Hong Kong stock exchange, and is expected to raise 1 billion U.S. dollars through the float, said the latest report. Industry insider held that the funds would be utilized for the expansion of international business.

Photo/Shetuwang

National Business Daily (NBD) noticed that this is Feihe's second attempt at an IPO in Hong Kong. 

As early as 2003, Feihe landed on the Nasdaq, being crowned as the first Chinese dairy product maker going public overseas. In 2005, Feihei transferred the trading to the New York bourse. However, due to increasing costs for fundraising, Feihei retreated from the U.S. stock market in 2013.

After the delisting, Feihe has been mulling for a comeback. The firm filed for a Hong Kong IPO in 2017 but later the IPO was suspended as the company in the same year acquired Vitamin World, a U.S. nutritional supplement vendor.

Founded in 1962, Feihe has been among the earliest milk powder producers in China. According to research company Frost & Sullivan, in terms of the retail sales value last year, Feihe ranked first among domestic infant formula brands with a 15.6-percent market share.

As is shown in the prospectus, Feihe has showcased a strong momentum in business performance. In 2017, its revenue soared year-over-year by 58 percent and profit rocketed by 186 percent in 2017 and the two metrics for 2018 surged by 77 percent and 93 percent year on year, respectively.

Eyecatching as the financial result is, a raft of challenges still await Feihe.

The prospectus unveiled that Feihe's investment in R&D only accounted around 1 percent of the revenue in 2018 and the first quarter of 2019. However, contrary to the insufficient outlay in R&D, the selling and distribution expenses took up nearly 1/3 of its revenue for the same periods. "The brand influence needs to be further improved," commented dairy analyst Song Liang.

With the escalation of raw material costs and a slowdown in sales increase, Feihe's gross profit growth has slackened off. The company recorded a year-on-year rise of 36.8 percent in gross profit for the first half of 2019, less than half of the growth of above 85 percent registered for 2017 and 2018.

Furthermore, the indebtedness of Feihe expanded rapidly as well. As of June 30, 2019, the total net liabilities of Feihe reached 3.3 billion yuan, nearly four times of the size in 2016.

Looking into the whole infant formula market, the drop in the birth rate in China might pose even larger challenge to Feihe as the increment space will be restricted and the competition in the domain will be fiercer.

Email: lansuying@nbd.com.cn