Hongjiu Fruit announced a rights issue to raise more than HK$800 million, hoping to solve the cash crunch problem.
Highlights:
In the first half of 2023, the company's accounts receivable accounted for 92 percent of current assets4%
In the first three quarters of 2023, the company's cash flow turned positive, recording a net inflow of $26.9 million.
This article was written by Li Shida.
A leading fruit distributor in ChinaChongqing Hongjiu Fruit Co., Ltd. ***(6689.hk)January 21AnnouncedAt the placing price of 4. per shareHK$35 for a maximum of 18.9 billion new shares, raising about 8HK$200 million (7.)400 million yuan), with a one-year lock-up period. The number of shares to be placed is equivalent to 16 of the enlarged number of H shares6%, and approximately 118%。
The company said the net proceeds will be used to strengthen the fruit chain, repay interest-bearing debt, and replenish liquidity and other general corporate purposes. The day after the announcement, Hong Jiu's share price was **14%, at 3HK$74, compared with the IPO issue price on September 5, 2022, has fallen by 91% so far, and the market value has evaporated by about HK$13.4 billion.
Three times in the first and a half years of listing
In fact, Hongjiu has been listed for 16 months and has "pumped" to the market three times. On April 4 last year, Hong Jiu had a price of 164 yuan**, and the additional issuance to domestic investors shall not exceed about 3,04880,000 new shares, raising 500 million yuan; On the 19th of the same month, the company paid 23 more placees 23. per shareA total of 14.96 million shares were placed at HK$61, raising a total of approximately 3HK$500 million.
The reason why the company needs money for emergency is because the company has always been in a "state of burning money". From 2019 to 2022, the cash flow generated by the company's operating activities has always been negative, and it is still negative 31.4 billion yuan until the company announced it in October last yearResults for the first three quartersIt finally turned positive, recording a net inflow of about $26.9 million.
The company explained that the tight cash flow from operating activities was mainly due to the significant increase in receivables and the company's advance payment for the purchase of high-quality fruits. According to the 2023 interim results, the company has about 5600 million yuan, ** and other receivables as high as 10.2 billion yuan, accounting for 92% of the overall current assets4%。
The porter becomes the king of fruits
The fact that the receivables are so high is related to Hong Jiu's business model. The founder, Deng Hongjiu, was once a "bangbang" (porter) at Chaotianmen Wharf in Chongqing, starting from selling fruits with a flat shoulder, and then starting his own business, establishing a first-class chain in Taiwan, Southeast Asia, and even Chile, South America, to create a high-quality fruit brand. After more than 20 years of development, Hongjiu has grown into the largest private label fresh fruit distributor in China, as well as the largest distributor of imported fresh fruits from Southeast Asia in China
In April last year, Hong Jiu held the "Durian Freedom Festival" in Shanghai to promote the "Hong Jiutai Delicious Durian" brand. In terms of revenue in 2022, Hongjiu is currently the largest durian distributor in China, and is also the top five distributors of mangosteen, dragon fruit and longan.
with opponentsHundred Fruit Orchard (2411.)hk)Different from directly facing consumers, Hongjiu's main sales objects are wholesalers, emphasizing the "end-to-end" integration ability, cooperating with overseas high-quality orchards, directly purchasing from the production area, reducing the intermediate process of fruit import and wholesale, and solving the problem of large fruit loss and low profits.
Relying on this business model, Hong Jiu achieved 15The gross profit margin of 4% is higher than that of Baiguoyuan's 113%。In the first three quarters of 2023, the company's revenue was 13.4 billion yuan, a year-on-year increase of 264%, and profit attributable to shareholders was not disclosed. According to the semi-annual report, as of June 30 last year, the profit attributable to shareholders was 800 million yuan, compared with 8500 million yuan fell slightly.
Although the company's revenue continued to grow, the excessively high receivables affected the company's finances, forcing the company to continue borrowing. As of June 30, 2023, the company's bank loans amounted to 27800 million yuan, compared with 18 in the same period last year600 million yuan, a year-on-year increase of about 492%。
In order to retain the terminal wholesalers, Hongjiu usually gives customers a turnaround period of 180 days, while on the other hand, in order to ensure the scarcity and quality of branded fruits, it is also necessary to provide advance payment to the merchants.
Supply and demand are caught between two sides
According to the 2023 semi-annual report, the turnover days of accounts receivable increased from 144 in 20228 days, an increase to 188 in the first half of 20235 days. As of June 30, 2023, **Credit impairment loss on receivables was 18.4 billion yuan, up from 1.4 billion yuan in the same period last year2.4 billion yuan, an increase of 478%。
The company said that due to the impact of the epidemic and macroeconomic factors, regional terminal wholesalers and small supermarket customers have encountered difficulties in their daily operations, so the receivables cycle has been extended. To put it simply, it is the customer's "default".
At the same time, the amount of advance payments to the top merchants is increasing, but the number of turnover days is decreasing. The company noted that in order to ensure the stability of the origin**, the number of days of prepayment turnover has increased from 383 days further reduced to 334 days.
In other words, the slower rate of receivables is accompanied by faster upfront payments, and the company's continued expansion, which puts a huge strain on cash flow due to the "end-to-end" model that the company prides itself on. In the case of the economic environment still not recovering, investors have put a question mark on whether the company can recover its debts, and the stock price has naturally plummeted.
In addition to continuing to raise funds through various means, Hong Jiuzheng is trying to solve the problem of excessive accounts receivable, analyzing the situation of different customers one by one, tightening the credit limit of customers, and increasing the credit review link to improve the collection of funds. At the same time, it also adjusted the downstream channel planning, and increased the proportion of customers with short account periods by increasing the layout of live broadcast e-commerce and integrated e-commerce.
In addition, according to the results of the shareholders' meeting announced in December last year, the company will expand its business scope to the Internet and vegetable industries. Vegetables are indispensable foods in people's lives, with large market demand and wide coverage, but it remains to be seen how to link with the fruit chain to achieve the effect of promoting revenue growth.
At present, Hongjiu's share price is hovering at an all-time low, and the price-to-earnings ratio has fallen to 39 times, and the opponent Hundred Fruit Garden is 125 times. Under the disappearance of the epidemic factor, the improvement of the financial situation, the expansion of sales channels, and the improvement of customs clearance efficiency of imported fruits, Hongjiu's share price may have a lot of room for improvement.