BaWang IPO debut set to shower money on founder couple

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By Ding Qingfen, Li Jiabao and Elgin Toh (China Daily)
Updated: 2009-07-03 08:06

Today, when BaWang Group makes its Hong Kong stock exchange debut, the firm's founding chairman Chen Qiyuan and CEO Wan Yuhua will become the richest couple in shampoo business circles on the mainland.

According to sources close to the Guangzhou-based company, BaWang is expected to raise funds worth 1.67 billion yuan by issuing 700 million shares on its first trading day today. This is projected to push up the couple's wealth to HK$5 billion.

"We expect the IPO to help us develop faster and internationalize our brand," said Wan.

Analysts said the IPO would break months of silence at the Hong Kong stock market, which has been languishing ever since the financial crisis erupted late last year.

BaWang's shares have already proved a hit with the Hong Kong market - they were more than 400 times over-subscribed by retail investors, and more than 40 times over-subscribed by institutional ones.

Its IPO price of HK$2.38 per share yields a price-earnings ratio of 18 times, based on estimates of its 2009 profits. Stock analyst Fiona Wong, from Hong Kong's Sun Hung Kai Securities, said she expects the stock to top HK$3 "without much difficulty" on the first day of trading.

Back in the 1980s when they first met in a laboratory in Guangdong, Chen, who was working for a trading company, and Wan, a fresh graduate from the United States, never expected to get married, let alone build together the largest herbal shampoo business in China.

In 1989, they took over a small company in Guangdong, renaming it BaWang and started selling a 'beer shampoo' they had jointly developed. The couple appointed sales agents to promote the products, freeing them from the mundane task of negotiating with the department stores and other retailers.

The shampoo succeeded in the Guangdong market, earning them enough capital to expand nationwide.

For years, BaWang trailed the Chongqing-based Aoni in the national herbal shampoo market. But in 1997, BaWang bought the intellectual property rights for a particular brand of herbal shampoo that proved more effective than previous Aoni products, winning the firm a fair reputation.

But what really brought BaWang into the limelight was its announcement in 2005 that it had roped in Jackie Chan as its product ambassador, a move that reportedly cost the company 10 million yuan. It has since signed on other big names, including singer Faye Wong.

According to global business intelligence provider Euromonitor, BaWang's sales topped the herbal shampoo market from 2006 to 2008, with its market share rising steadily to the current 46 percent. It was also China's fourth best-selling shampoo, herbal or not, next to Rejoice, Head & Shoulders and Pantene, all of which are P&G brands.

BaWang's profits have grown from 116 million yuan in 2006 to 282 million yuan in 2008. The firm's advertising expenditure has also rocketed, increasing from 84.8 million yuan in 2006, to 339 million yuan last year.

But analysts say the company might be focusing too much on advertising, and have suggested that it spend more on R&D and packaging to ensure a more sustainable growth.

Of the funds raised from the IPO, 30 percent will go toward marketing, 20 percent for R&D, 18 percent to developing sales networks, 12 percent to establishing manufacturing facilities, 10 percent for acquisitions, and 10 percent for cash flow needs, the company said.

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