Tianmei Beverage draws strong investor interest ahead of trading debut in Sydney

PUBLISHED : Monday, 27 February, 2017, 9:59pm
UPDATED : Monday, 27 February, 2017, 10:52pm

Australian investors have over the last few weeks rushed to subscribe shares from an Australian company which owns a 100 per cent interest in Chinese beverage and consumer goods company Tianmei Beverage Group, in the hopes of tapping China’s growing appetite for food safety.

The prospectus says the company will maintain two business lines, one involving the distribution of Tianmei branded water products throughout 519 retail outlets, while the second will involve a product promotion business that introduces third party food, beverage and general grocery supplies to 941 contracted stores.

Tianmei Beverage Group, saw its shares oversubscribed during the initial public offering (IPO) on the Australian Stock Exchange, and will likely price at the upper end of a range that will value the company at up to A$34 million (US$26.09 million) on Tuesday’s trading debut in Sydney. Although that market capitalisation is just a fraction of Chinese beverage group Kweichow Moutai, with more than 21,100 employees, it amounts to a mammoth deal for Tianmei which counted only 113 employees as of October.

One reason for the popularity of the IPO is the company’s growth potential given the growing awareness of food safety in China, and the perception that foreign brands are of high quality.

In fact, a lucrative underground trade has developed whereby foreign food and dietary supplements are shipped to China under what’s known in Chinese as “daigou,” which translates as “buying on behalf”, or the practise of bulk-buying goods such as baby formula which are then resold at a markup. The practise contributes to US$5 billion to US$7.5 billion in sales worldwide according to consultancy Bain & Co.

In its listing prospectus, Tianmei referred to the mainland demand for foreign products in a section entitled “Strengths and competitive advantage”.

“[Tianmei’s] ability to reach into its well established and expansive network of reputable and quality suppliers, including Australian producers, gives it a distinct competitive advantage in supplying its contracted stores with the high quality products demanded by the Chinese population.”

Tianmei’s chairman Tony Sherlock emphasised the value of its established retail network of 941 supermarkets and convenience stores.

“A public float on ASX opens up an opportunity for local investors who want to bet on China-related companies,” Sherlock said.

He added that Tianmei would offer a distribution channel that would link Australian goods directly to Chinese consumers.

“We have already signed memorandums of understanding with two Aussie companies, a dairy firm that makes milk, butter and yoghurt and a food and beverage distributor,” said Sherlock, 75.

According to the company’s prospectus, Tianmei is engaged in sourcing and selling premium bottled spring water containing elements such as selenium, while serving as a distributor that ties up food and beverage suppliers to stores with which it had inked supply deals.

“What makes this bottled water maker different is that it sells almost exclusively in upscale grocery stores in China, such as the boutiques where Kweichow Moutai opts to display its lavish liquor,” said Zhu Danpeng, an associate with China Branding Institute.

“So it makes sense for us to expect the Australian food and beverages they source will be distributed across its high-end retailer partners that should also be eager to tap into Chinese demand for imported goods.”