Taiwan tea brand retailer charts path to sales growth

| 5 Mar 2018

Tracy Hu

Listing candidate B&S International, which is set to debut on the main board next Wednesday, will use 65.6 percent of IPO proceeds to open new outlets and widen its retail footprint.

More new outlets will help the company capture the strong growth potential of the beverage industry.

B&S chairman and chief executive Andrew Chan Kam-chuen, said last week that a new TenRen tea outlet will be opened in Ma On Shan next month in addition to its existing 32 outlets. Another eight branches will be opened in the fiscal years of 2019 and 2020.

Chan also said the company will assess the market before raising the price of TenRen's menu and ensure the balance of profit and market response. The average price of TenRen tea products is HK$20.30.

He added that although rents and staff costs are high, prices of materials and ingredients for beverages are reasonable.

Chan said the company will focus on further developing its newly-introduced brands and look for more overseas popular brands. He said B&S will first explore Guangdong province when considering expansion.

The retailer which has the right to self-operate the popular takeaway beverage brand TenRen in Hong Kong opened its retail book last Monday to raise up to HK$100 million by issuing a total of 100 million shares at a price range of 80 HK cents to 100 HK cents.

The minimum investment for one board lot of 4,000 shares is HK$4,040.31.

Capital raised through the initial public offering will also be used to lease, set up new warehouse facilities, upgrade the enterprise resource planning system, hire three more marketing sales people as well as for general working capital purposes.

With over 27 years of operating history in Hong Kong, the food and beverage company's business portfolio also includes distribution. Its top products include UHA and Hsin Tung Yang.

To attract overseas brand owners and local retailers, B&S provides supply chain solutions in its distribution operation, including arranging inbound logistics, relabelling the products to comply with relevant Hong Kong food safety and labelling laws, repackaging the products to suit the needs of retailers or the consumers, and formulating marketing and sales strategies.

TenRen, which has a presence at bookstore Eslite, is the largest revenue contributor in the retail business, which accounted for 92.2 percent of income. With a market share of 24.3 percent, the premier Taiwanese tea-based beverage brand has opened retail outlets in Taiwan, Japan, Singapore, Malaysia, Hong Kong, Canada, Australia, and North America.

B&S International primarily offers takeaway drinks at its 32 self-operated retail "TenRen" tea outlets, including the milk tea series, the classic tea series, the fresh juicy tea series, the icy drink series and the winter decaf series.

Other products include tea-flavored ice-cream, packaged tea leaves, packaged snacks as well as tea ware.

Apart from TenRen, B&S also operates Japanese cheesecake retail outlets Uncle Tetsu and British luxury chocolate brand Hotel Chocolat in Hong Kong, although the latter two did not contribute significantly to its profit.

Its three licensed Japanese cheesecake retail outletsUncle Tetsu in Hong Kong contributed up to 9.4 percent of revenue in the past several years. It mainly offers cheesecakes, cheese tarts, and panna cotta.

Three retail shops of Hotel Chocolat, a recently set up British chocolate brand in Hong Kong, has not made a significant contribution yet.

The company has a very high debt-to-assets ratio. The gearing ratio exceeded 109.8 percent in the past three years.

Net profit and revenue have grown in the past three years, but B&S considers cashflow as a risk as it may be subject to a liquidity gap due to mismatch in time between receiving payments from customers and payments to suppliers. Its trade receivables turnover days are up to 103.5 days and trade payable turnover days are up to 13.1 days.

As a result, it has to rely on internal resources and bank borrowings to maintain cashflow and to fund daily operations.

"If we fail to manage the cashflow mismatch or if the mismatch increases, we may have higher funding requirements either from our internal resources or from bank borrowings to meet our payment obligations and our results of operations and financial condition may be materially and adversely affected," the company says in the IPO prospectus.

Lego Corporate Finance Limited is the sole sponsor. Lego Securities Limited is the sole global coordinator and one of the joint bookrunners. Kingsway Financial Services Group Limited is one of the joint bookrunners and one of the lead managers.

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