FightingGoddessCatalist-listed China Star Food is the sponsor of a high profile female wrestling national championship birthed in Lian Cheng county, where the health snack manufacturer is headquartered. (Internet Photo)

China Star Food Group struck the right cord in its advertising strategy when it decided to sponsor Chinese Internet media’s first ever ladies’ wrestling championship.

Branded as “Fighting Goddess”, the sports reality TV program hosted by QQ.com has the right formula for media success: Beautiful women wrestling on China’s leading mobile phone Internet platform.

The program was so successful that its taglines became social media buzz words when the program was launched last year.


LiangChengWang3 10.2016

“Our branding, advertising, and promotional activities will drive the sales of our specialty retail stores and other distribution channels.”


- Liang Chengwang
Executive Chairman
China Star Food Group

(Photo by Sim Kih)

Many of the viewers are likely to be fitness- oriented or keen on staying healthy.

“The current generation of consumers is highly health conscious and appreciate the sweet potato's exceptional nutritional properties,” said Executive Chairman, Mr Liang Chengwang.

He was addressing a query at an investor roadshow on Thursday (20 October) on the Group's customer profile given the perception that sweet potatoes are a poor man's staple.

Its snacks are winners with ladies. Beneath the image of well-toned ladies in its sponsored sporting program was the subtle message that China Star snacks fit well into a health conscious lifestyle. 

“We have a multi-brand strategy that targets different consumer segments. For example, Starpie is for hypermarkets like Walmart while Zilaohu is for e-commerce customers. We want to create a brand image of a business that is highly professional and specialized in the manufacturing and delivery of sweet potato food products.

“We will roll out one or two new products every year to stay ahead of the competition,” he said.

The Group collaborates with research institutions to implement advanced technology in its production process and product design. That is how it manages to be a market leader in rolling out a wide range of sweet potato snacks.

“Our advertising channels range from highway billboards, joint promotional publicity with supermarkets, gaming companies, and e-commerce platforms such as T-Mall to the sponsorship of TV programs. We are employing a variety of advertising and promotion channels in targeted key cities after evaluating the city's consumer and demographic profile,” he said.

The Group has budgeted an advertising expense ratio of about 5% to 10% of revenue.

“Our first specialty store opened last month. We have a franchise program and plan to open 20 to 30 new specialty stores by next year.

Xiamen station convenience storeChina Star's packaged convenience foods at a convenience store located at Xiamen train station. (Photo: Company)“Our specialty stores will offer freshly roasted sweet potatoes and the aroma will be irresistible to consumers," said Mr Liang, responding to a query on why the company decided to invest in specialty shops when its products are easily available supermarkets.

“Having specialty stores is more powerful than lining supermarket shelf space.

“In China, it is common to find specialty stores for food. We have a customer that runs a sweet potato-themed restaurant, with menu items such as milk tea made of sweet potatoes, sweet potato pizza, and sweet potato dumplings,” he explained.

The Group undertakes initial renovation works for its specialty stores and its franchisees bear the cost of ongoing rental and manpower overheads.

 


ChanSiewKit 10.2016

“Cultivating our own sweet potatoes gives us better control over the quality of our raw materials.”


- Chan Siew Kit
CFO

(Photo by Sim Kih)

Ramping up capacity

The management expects its 3rd factory to be operational at the end of this year.

The factory sits on a 13,910 sq m plot of land in the Liancheng Industrial Park and will enable the Group to roll out frozen sweet potato fries, its latest product for the market.

It has a 4th factory that will occupy another plot of land of 55,733.36 sq m, also in Liancheng Industrial Park. The planned capacity for its 4th factory is four times the size of its 3rd one.

The Group currently owns 133 hectares (2,000 mu) of agricultural land which supplies about 10% of its factories' raw material needs. It is targeting to more than double the cultivation land to 333 hectares (5,000 mu) by the end of calendar year 2017.

Stock price  27c
52-week range 19.7c-42.5c
Market cap S$69.4m
Price Earnings 30x
Price-Book 0.933x
Debt/EBITDA 0.113x
Source: SGX StockFacts

The additional agricultural land will increase its capacity to 20% of its factories' needs as well as enable it to enter the sweet potato fresh produce market, which will lift its gross margins.

The Group’s 1QFY2017 revenue was lifted by 7.9% year-on-year to RMB 123.5 million but net profit fell by 20.5% to RMB 21.8 million due to higher expenses arising from its multi-pronged expansion plans.

Marketing and distribution costs increased by 70.8% to RMB 18.2 million while administrative expenses increased by 82.1% to RMB 6.7 million.

“We expect revenue for our financial year ending 31 March 2018 to be boosted when new products are rolled out from our new factories,” said the Group’s CFO, Mr Chan Siew Kit, who was also present at the meeting.

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