Wilmar's chief rides on cooking oil dominance

[SINGAPORE] Kuok Khoon Hong is ready to pull off a remarkable second act. The billionaire sold shares of his China business in the biggest initial public offering (IPO) on the Shenzhen Stock Exchange, thanks to the most popular cooking oil brand in the country.

Mr Kuok's Yihai Kerry Arawana Holdings will debut on the tech-heavy ChiNext on Thursday after its IPO raised 13.9 billion yuan (S$2.81 billion). Its namesake cooking oil with a Golden Dragon Fish logo has been a staple of Chinese kitchens for decades and fuelled demand 3,499 times the amount of shares offered to retail investors online.

After starting production in 1991 from the mainland's first packed oil production line, the unit of Mr Kuok's Wilmar International now has 40 per cent of a Chinese edible oil market that consumes almost 40 million tonnes annually. The IPO comes just three years after the country opened doors for foreign firms to invest in the oilseeds crushing sector, allowing global names such as Bunge and Cargill to take on local rivals including Arawana and state-run Cofco Corp.

"Yihai Kerry Arawana has tremendous controlling power in its own market, with a solid sales performance even during the lockdown period of the coronavirus," said Wang Ling, a Beijing-based analyst with Sinolink Securities.

The analyst expects the company to boost its profit margin with high-end food products and is predicting the shares to rise 25 per cent from the IPO price of 25.70 yuan during the next 12 months.

The share sale surpassed CGN Power's 12.6 billion yuan listing in 2019 to be the largest IPO in Shenzhen, according to data compiled by Bloomberg.

Mr Kuok's IPO of Arawana follows his success in turning Wilmar, with annual revenue of more than US$40 billion, into the world's biggest palm-oil business. Shares of the Singapore-based commodities giant have risen 13 per cent so far this year, trading at S$4.65 apiece on Wednesday. Archer-Daniels-Midland Co owns more than 20 per cent of Wilmar.

Arawana pitched the IPO as a reflection of its position in China and a bet on the country's future, it said in a statement on its website last month. The company had revenue of 171 billion yuan in 2019 with net income of 5.56 billion yuan, according to an exchange filing.

The IPO appealed to the mainland's individual retailers with a promise to share profits with the Chinese people and contribute to the economy of its homeland.

That's a powerful message in a market where individual investors are fuelling a share rally, with the value of Chinese domestic equities topping US$10 trillion for the first time since 2015. The world's second-largest stock market has added US$3.3 trillion since a low in March, helped by government policies to encourage trading, a flurry of new listings and the strengthening yuan.

Huang Xiong, a 53-year-old from Shanghai, snared an allocation of shares in the IPO and said he was drawn in by Arawana's strong position in the cooking oil market.

"The product is meeting demand for something that all homes must consume on a daily basis in China," Mr Huang said in a telephone interview. "Arawana has been in a dominant position here as a brand everybody knows for many years," he said, adding that a general bullish sentiment in China's stock market fuelled interest.

Yihai Kerry Arawana operates more than 70 production bases in China producing cooking oil to rice, flour, diary and other ingredients. It has said the IPO proceeds will be used on 19 food production projects in the country.

Mr Kuok has reiterated his confidence in the mainland, even as a deadly pig-killing virus cut demand for animal feed, and the outbreak of coronavirus forced people to dine at home.

In its latest expansion, Arawana will invest 10 billion yuan to build the largest food complex in China's east, according to the local government. The industrial park located in Jiangsu's Lusi port will include an edible oil refinery, facilities to crush oilseeds and process rice, as well as piers. The project will target the almost quarter of a billion consumers in China's rich Yangtze River Delta, a market that includes Shanghai, Nanjing and Hangzhou.

BLOOMBERG

READ MORE: Wilmar unit YKA's IPO shares to start trading on Shenzhen bourse on Oct 15