Shandong Province-based marine snacks-to-frozen seafood supplier Aquatic Foods (AFG:AIM) got off to a steady start on its AIM market debut, the shares nudging 1.5p higher to 71.5p. Growth metrics for the rough £80 million company look pretty tasty, but given poor investor sentiment towards Chinese small caps, Aquatic Foods has much to do to convince that they are achievable.
Having raised £9.3 million at 70p per share, Aquatic Foods offers bolder investors a way to play the growing affluence of an increasingly health conscious Chinese middle class. The company supplies processed frozen seafood, seaweed-based foods and marine snacks under two key brands; 'Kanwa Foodtuffs' serves overseas markets such as Japan, whereas 'Zhenhaitang' is the brand sold in mainland China.
Marketing its wares through regional distributors, the company's products wing their way into supermarkets and hypermarkets spanning 16 Chinese provinces, municipalities and autonomous regions. Significantly, CEO Li Xianzhi believes the Aim listing will enhance the company's reputation in the Peoples' Republic of China (PRC), where consumers are concerned about food hygiene and safety following a series of health scares.
Reassuringly, Aquatic Foods claims to benefit from 'excellent food safety procedures' developed over many years. This helped it build a strong track record in export markets, which in turn has enhanced the perception of the quality of its products in the PRC, where the bulk of sales are generated and demand for seafood products continues to grow.
Aquatic Foods, whose operations are based close to the biggest fishing port in Shandong Province, plans to use the placing proceeds to increase process automation, expand its production facilities and to invest in product innovation and expanding its distribution across the PRC. Funds will also be deployed to expand a chain of Zhenhaitang-branded stores in China that exclusively sell Aquatic's products.
In light of the dire performance of Chinese Aim stocks, many of which lack transparency and post questionable numbers, risk-averse investors should probably steer clear. That said, the group does provide some pretty compelling numbers. Between 2011 and 2013, sales and profits increased at a compound annual growth rate (CAGR) of 55% and 76% to RMB 667.3 million (£70.8 million) and RMB 118.6 million respectively.