Huiyuan Juice plans HK$2b share sale

China's largest fruit juice maker seeks approval from Hong Kong stock exchange for November flotation

Beijing Huiyuan Juice Holdings, the mainland's largest fruit juice maker, plans to seek approval this month from the Hong Kong stock exchange to raise about HK$2 billion in an initial public offering as early as November, according to market sources.

Morgan Stanley, UBS and CCB International, the investment banking arm of China Construction Bank, are arranging the sale.

Parent company Beijing Huiyuan Beverage and Food, the mainland's largest drinks company by revenue, said last month that the company had not yet decided on a location, timeframe or size for a possible share sale.

The two mainland juice companies already listed in Hong Kong have met different fates this year. Shares of China Haisheng Juice, which trade at 9.12 times forecast earnings for next year, are down 2.6 per cent, while those of Yantai North Andre Juice, trading at 13.9 times forecast next year's earnings, are up 23 per cent.

The benchmark Hang Seng Index is up 17.7 per cent while the H-share index has jumped 27 per cent.

A consortium of foreign investors, including French food multinational Danone Group and US buyout firm Warburg Pincus, paid US$223 million for a 35 per cent stake in Huiyuan Juice in July. Danone took 22 per cent while the Netherland's Development Finance Company, Hong Kong-based fund Value Partners and Warburg took undisclosed slices of the remaining 12 per cent.

In addition to fruit and vegetable juice, the company makes liquid milk products and tea drinks.

While Huiyuan Juice controls only 17 per cent of the overall mainland juice market, it is the leading producer of higher-margin products, with 30 per cent of the market for mixed juices and 42 per cent of the 100 per cent pure juice business.

'There's growth potential there because people on the mainland are becoming more aware of their health,' said Francis Lun, general manager at Fulbright Securities.

The mainland juice business has been growing at an annual average rate of more than 15 per cent in the past three years and there is room to expand. Mainlanders drink, on average, two litres of juice a year per capita, compared with 11.5 litres in Hong Kong and Taiwan.

Mainland firms face competition from the juice offerings of big foreign companies including Coke and Pepsi and domestic beverage manufacturers including Wahaha, China's largest bottled-water producer, as well as Taiwanese firms including Tingyi. Danone owns a 30 per cent stake in Wahaha.

Rising fruit prices were putting pressure on margins, however, fund managers said.

Despite the rising prices, China's overall lower production costs make mainland juice companies very competitive in international markets.

Haisheng and Yantai have captured about 40 per cent of the world apple juice concentrate market in about a decade.

Huiyuan Juice exports to 20 countries.