Teway Food adds a new flavor to the hot new stock market in Hong Kong

The recipe-style condiment and hot pot condiment manufacturer Teway Food has applied for a listing in Hong Kong, aiming to become an integrator in China's vast condiment market. Key Points: Sichuan Teway Food, which focuses on pre-mixed condiments for young consumers, recently applied for a listing in Hong Kong. The company's revenue is expected to grow at an average annual rate of about 15% from 2022 to 2024, but it experienced a contraction in the first half of this year, which the company attributed to the impact of the Lunar New Year holiday being earlier. Yang Ge In a time when most consumer stocks lack highlights and valuations are flat, condiment and spice manufacturers have become one of the few exceptions. These companies often benefit during economic slowdowns as more consumers reduce dining out and shift to cooking at home. Companies producing recipe-style condiments and hot pot condiments are particularly advantaged, catering to the needs of the younger generation that values convenience and prefers to simplify cooking processes. In this market atmosphere, Sichuan Teway Food Group Co., Ltd. (603317.SH) submitted a listing application to the Hong Kong Stock Exchange last week, hoping to attract investor interest with its ready-to-cook recipe condiments and hot pot condiment business, supplementing its existing listing status on the Shanghai Stock Exchange. This move will make Teway Food the second major condiment company in China to be listed simultaneously in Shanghai and Hong Kong, following Haitian Flavoring and Food (3288.HK; 603288.SH), which was listed in Hong Kong in June this year. Slightly unfavorable is that Haitian Flavoring's Hong Kong stock has fallen about 13% since its listing until last Friday, in contrast to the Hang Seng Index, which rose about 8% during the same period. However, even with the stock price decline, Haitian Flavoring's price-to-earnings ratio remains at 24 times, while its Shanghai A-share price-to-earnings ratio is even higher, around 32 times. In comparison, many retail, dining, and consumer goods manufacturers currently barely maintain a double-digit price-to-earnings ratio. Such high valuations have recently become a common characteristic of condiment stocks. As China's economic growth slows and consumers become increasingly cautious, these companies benefit from their counter-cyclical characteristics. Teway Food's stock listed in Shanghai currently has a price-to-earnings ratio of about 24 times; another condiment company, Qianhe Flavoring (603027.SH), is around 28 times; while Guoquan (2517.HK), which provides home hot pot ingredients, has a price-to-earnings ratio as high as 30 times, indicating that investors still maintain strong confidence in this sector. These companies generally focus on the domestic market in China, and Teway Food is a typical example. The company stated that currently over 99% of its revenue comes from within China. Therefore, Teway's decision to apply for a secondary listing in Hong Kong seems somewhat special; after all, most companies already listed in Shanghai and Shenzhen that go on to issue H shares in Hong Kong typically do so to enhance international visibility and raise funds for overseas expansion. Teway Food mentioned the potential for overseas expansion in its application documents, noting that its products are currently sold in more than 50 countries and regions outside of China. However, a common challenge faced by many Chinese condiment companies is that their product flavors are highly localized and designed for Chinese consumer tastes, which often means they can only perform well in markets with Chinese communities, while their penetration in other regions remains limited Despite this, Teway Food still has a large growth space in the domestic market. The preferences of the new generation of consumers are changing; they tend to abandon traditional and cumbersome cooking methods in favor of quick-cooking pre-mixed seasoning packets. In addition, the love for hot pot among Chinese people remains strong, not only as a mainstream choice for dining out but also increasingly popular in home hot pot scenarios. Teway Food's two core products are hot pot seasoning and recipe-style seasoning, the latter covering cooking scenarios such as crayfish, fish, sausages, and cured meats. According to third-party data cited in the application documents, the market size of China's hot pot seasoning reached 26.9 billion yuan (approximately 3.8 billion USD) last year, with an expected average annual growth rate of 9.1% over the next five years; while the recipe-style seasoning market was about 21.6 billion yuan last year, with an expected average annual growth rate of 12.5% over the next five years, indicating strong growth potential. Market Penetration Still Limited One of the reasons driving the rapid growth of such products is that the penetration rate of pre-mixed seasoning in China is still relatively low. In China, many consumers over the age of 50 still prefer to cook in traditional ways, using basic condiments like soy sauce and chili flakes to mix their own flavors. However, the younger generation of consumers places more emphasis on convenience, gradually becoming the dominant purchasing force in China's seasoning market, driving the popularity and demand for pre-mixed seasonings. The company states that the penetration rate of compound seasonings in mature markets like the United States and Japan is about 54% of the overall seasoning market, which is more than double China's 25.4% penetration rate. Therefore, as the Chinese market gradually catches up with these mature economies, there is still considerable room for growth. Teway Food was established in 2007 and officially entered the food business in 2013, launching recipe-style seasoning products and hot pot seasoning products in 2015 and 2017, respectively. In recent years, the company has actively expanded its business footprint through acquisitions, including the acquisition of a 55% stake in Sichuan Shicui Food Co., Ltd. for 919 million yuan in 2023, which primarily serves clients in the catering industry; and the acquisition of a 64% stake in Hangzhou Jiadian Flavor Technology Co., Ltd. for 154 million yuan last year, which has significant advantages in online sales channels. These initiatives demonstrate that Teway Food, as China's fourth-largest compound seasoning manufacturer, has the potential to become an integrator in a highly fragmented industry. The company indeed has the conditions to become an industry integrator, as its birthplace, Sichuan, is famous for its spicy and flavorful "Sichuan cuisine," one of China's most representative regional cuisines. On the operational level, the company's business still belongs to the traditional industry type. It maintains a low double-digit growth of about 15% annually from 2022 to 2024, with revenue reaching 3.45 billion yuan in 2024. However, in the first half of this year, revenue decreased by 6.2% year-on-year, falling from 1.46 billion yuan in the same period last year to 1.37 billion yuan. The company attributes this to the earlier timing of the Lunar New Year holiday (with the 2025 Spring Festival falling in January), while in 2024 it will be in February. However, it is worth noting that Haitian Flavor Industry was also affected by the timing of the holiday, yet still recorded a 7.6% revenue growth in the first half of this year Teway Food's main source of profit comes from its recipe-based seasoning business, accounting for about two-thirds of the company's total revenue; hot pot seasoning products make up the remaining major portion. The company's gross profit margin has continued to improve, rising from 33.9% in 2022 to 38% in the first half of this year, which is roughly comparable to the levels of Hai Tian Wei Ye and Qian He Wei Ye. The company's profit performance remains robust, but in the first half of 2025, net profit is expected to decline by 25% year-on-year to 185 million yuan, mainly due to pressure on both sales and gross profit margin