Flotation of China hair care company sparks investment fever

Guangzhou-based BaWang, which manufactures a range of herbal-based hair care products sold throughout China, had made an initial offer to sell shares at between HK$1.95 (€0.18) to HK$2.38.

According to the company all 700,000 shares were sold on the Hong Kong stock exchange at HK$2.38, reflecting a new-found confidence in Asian investors that has sparked significant interest in Chinese consumer goods players.

In line with this, the company said that demand from retailers was so strong for the shares that the public offering was 400 times oversubscribed, leading the company to increase share allocation for retail investors from 10 per cent to 50 per cent.

Interest mainly from Asian investors​

Interest came mainly from Asian investors, however, the company also stated that there was significant interest from both American and European investors too.

BeWang claims to be the leading brand in the overall shampoo market in the People’s Republic of China, a factor that undoubtedly put a significant premium on the share flotation.

Likewise, the company also claims to sell the most popular China-owned shampoo brand in the country, and the fourth most popular brand overall – the top three products all being produced by Proctor & Gamble.

Flotation backed by advertising campaign​

During the build up to the flotation the company launched an aggressive advertising campaign that saw the brand being advertised through television commercials broadcast throughout China.

Further to this, the company says it wants to increase its investment in brand promotion in the wake of the flotation, saying that it wants to reinvest approximately 30 per cent of the money it raises back in to more advertising.

A further 20 per cent of the money from the flotation will be reinvested back into research and development, while 20 percent will go on increasing the distribution of the products in newer markets such as Taiwan.

Expanding production and future acquisitions​

Another 12 per cent will be spent on expanding production facilities in Guangzhou province, while the remaining investment will be used as working capital and money set aside for potential future acquisitions.

“​We will continue to invest our resources in Chinese herbal shampoo products, in order to strengthen our leading position and further increase our market share. We intend to launch a new series of Chinese herbal skin care products in the second half of 2009”,​ said Chen Qiyuan, Chairman and Executive Director of BaWang.

Annual retail sales of Chinese herbal shampoo products in China increased from CNY418m (€43m) in 2002 to CNY1.98bn in 2007, representing a CAGR of 36.5 per cent, according to Euromonitor.