China loves cured meat. But will Wing Yip’s satisfy investor palates?

While its pork sausages and bacon-like smoked meats may seem niche outside China, they are big business in the world’s largest meat market

Key Takeaways:

• Wing Yip has filed for a Nasdaq IPO that could raise $30 million, similar to the $25 million it raised in its 2018 listing on South Korea’s Kosdaq exchange
• The company competes in China’s vast $87.8 billion market for meat products, which is projected to grow 20% annually between 2023 and 2027

By Edith Terry

Investors who think China tech stocks look too risky these days might consider putting some sausage on their plates instead. That’s the pitch coming from Wing Yip Food (China) Holdings Group Ltd. (900340.KQ), which last week served up a prospectus for a Nasdaq listing underwritten by niche brokerage EF Hutton.

The IPO could raise an amount similar to the $25 million Wing Yip raised in 2018 in a listing on South Korea’s Kosdaq exchange, with one source saying the company was aiming for $30 million. Korean investors haven’t exactly salivated over the stock, which now trades at about half of the IPO price.

The Korean ticker isn’t very richly valued, giving Wing Yip a market cap of 57 billion won ($43.3 million) and a not-very-savory price to sales (P/S) ratio of 0.33. Still, that’s higher than the 0.16 for Yurun Food Group (1068.HK) and almost the same as WH Group (0288.HK), two of China’s largest meat producers, the latter of which owns U.S. giant Smithfield.

Wing Yip’s new listing attempt may not be a barnstormer, coming from a meat market that is notorious for price swings that can make a company profitable one year, only to lose money the next. Its revenue and profit profiles are trending mildly down but are likely to be generally steady. Its brand is more than 100 years old and has fresh potential with younger Chinese consumers looking for something different from more ordinary daily fare.

Wing Yip may offer just that, as the type of smoked meats it sells are quite famous across China and are the type of value-added food product that can entice consumers to pay a premium.

The company’s revenue has declined slightly over the two full years in the prospectus, falling from $134 million in 2021 to $130.7 million in 2022. It recorded a similar decline to $65.5 million in the first six months of last year from $66 million in the year-ago period. Its profit trended similarly, falling from $6.86 million in the first six months of 2022 to $6.22 million in the first six months of last year, while its gross margins have held relatively steady at between 33% and 36% over the last three years.

The late 2010s was notable for outbreaks of African swine fever that hit China’s entire meat industry, with pork prices more than doubling as the industry lost 27.9 million tons of its pork output. The company was relatively unaffected by the more recent pandemic, since its products have a long shelf life and are easily packaged and sold through e-commerce that thrived during frequent lockdowns and other Covid restrictions.

As a company with plenty of cash flow and relatively little debt – its obligations now total just $20.4 million – Wing Yip also seems in relatively solid financial shape.

Mega meat market

So, what are Wing Yip’s most savory points? Perhaps the biggest is its solid presence in a market for specialty processed meats, snacks and frozen meat, which will only grow as Chinese incomes rise.

China’s meat market is the world’s largest, worth $87.75 billion in 2023 and expected to grow about 20% annually between 2023 and 2027, accounting for 28% of global consumption, according to China Briefing. Wing Yip sells in 18 Chinese provinces through 72 distributors, seven e-commerce platforms, and seven self-operated stores. Its products – cured pork sausages in particular – are comfort food across China.

China’s preserved and cured meat product market had retail sales of 52.9 billion yuan ($7.3 billion) in 2022, according to third-party data in Wing Yip’s prospectus. Wing Yip had a 9.2% market share in the cured meat category, making it the market’s second-largest retailer.

Wing Yip is looking to beef up its operations with its latest IPO. Just under half of the proceeds will be used for new processing and production equipment.

A family enterprise, the company was founded in 1915 and current CEO Wang Xiantao is a fourth-generation member of the founding family. He joined after proving himself by setting up a cured sausage distributor in Huangpu, a town famous for its Cantonese-style sausages, using his own money after quitting his job in Guangzhou. He joined the family business as chairman in 2015, at the age of 31.

Wang has worked hard to develop a nostalgia-based brand image for Wing Yip’s products, which sell under the Wing Yip name for its core cured meats, as well as the Jiangwang and Kuangke names for its meat snacks. Revenue from cured meat products under its Wing Yip brand made up 67% of its total in 2022, while snacks and frozen meat products made up the remainder. Wang was able to get “intangible cultural heritage” status for Wing Yip’s Huangpu sausage. He is also prone to making grandiose statements, such as “Cultural innovation, the essence of inheritance, is in my blood. Only culture can be passed from age to age.”

But Wang is also aware of changing tastes, and his 51-member R&D department is developing newer products catering to growing demand from a newer generation of more health-conscious young Chinese. Its newer products include plant-based meat alternatives and a joint venture with Korea’s Foodnamoo (290720.KQ) to develop chicken breast fillets in China.

The company is also embracing the younger generation’s taste for shopping on the internet, setting up its own online store in 2017 and working with major e-commerce platforms. But those are still a relatively small part of Wing Yip’s business accounting for just 2% of its revenue.

Wing Yip is hardly the only meat maker coming to market right now and could face competition attracting investors. WH Group is reportedly considering its own U.S. listing for Smithfield after taking it private in 2013. And Guoquan Food (2517.HK) went public in Hong Kong last November, catering to meat lovers with its focus on prepared sliced meats used for cooking in popular hotpots.

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