China’s top soy sauce maker set to begin trading in Hong Kong

Foshan Haitian Flavouring & Food Co., China’s biggest soy sauce maker, will begin trading in Hong Kong on Thursday after its HK$10.1 billion ($1.3 billion) stock offering drew strong demand from investors.

The stock rose in Hong Kong’s gray market on Wednesday. Earlier this week, Foshan Haitian sold the shares at HK$36.30 apiece, the high end of its marketed range, and attracted cornerstone investors including Hillhouse Investment, GIC Pte and RBC Global Asset Management.  

Both institutional and retail investors flocked to buy shares of the condiments giant, betting it will continue to widen its lead in China in products ranging from soy sauce to cooking wine.

Valuation

The company, which already boasts a market value rivaling that of Kraft Heinz Co., is now betting demand for organic or reduced-salt variants of its products will help drive growth as consumers become more health conscious. 

“Haitian deserves a higher premium valuation due to its growth potential,” wrote Ouyang Yu, an analyst at Hua Chuang Securities, which initiated coverage of the stock with a HK$50 price target. Still, the company faces risks such as increased competition and higher raw material costs, Yu wrote.

The company, which was founded in 1955, already fetches a premium at home. Its stock in Shanghai trades at more than 31 times estimated earnings, trumping Kweichow Moutai Co.’s 19.

That’s also higher than the multiples fetched by Heinz and Japanese soy sauce giant Kikkoman Corp.

Expansion

Foshan Haitian is also the latest big Chinese company to add a listing in Hong Kong’s hot equity capital market, which became home to the world’s biggest listing this year after Contemporary Amperex Technology Co Ltd.’s $5.2 billion deal. 

Though China’s condiments market is huge — consulting firm Frost & Sullivan estimates it will grow 7% annually to about 700 billion yuan ($97 billion) by 2029 — the company is eyeing expansion in markets such as Southeast Asia and Europe.

The company said it plans to use proceeds from the deal for product development, new technologies and upgrading its overseas supply chain.

In its Hong Kong offering, the company sold the stock at a discount of about 17% to the prior close of its Shanghai stock. Hong Kong shares trade at about a 23% discount to mainland China-listed ones. 

China International Capital Corp., Goldman Sachs Group Inc. and Morgan Stanley were joint sponsors for Foshan Haitian’s listing in Hong Kong.