A tilapia company guaranteeing a CNY 100 million (USD 15.8 million, EUR 12.9 million) loan, could at first glance, appear to outsiders like a strange decision. But then, Baiyang Industrial Investment Group Co. isn’t really a tilapia firm anymore – it got nearly half its profits in 2017 from non-seafood businesses.
Previously known as Baiyang Aquatic Group, the firm changed its name several years ago to make itself more attractive to investors. Baiyang’s decided in February to guarantee a loan to Guangxi Hong Sheng Yuan Environmental Protection Co. The loan was extended by Pu Fa Bank in Nanning City to help the company compete for contracts in the environmental rectification market which includes wastewater, recycling, and sewage treatment, one of the most lucrative and investor-attractive sectors of the Chinese economy.
Backing Hong Sheng Yuan makes sense for Baiyang Aquatic because the Chinese government is spending billions of yuan each year to try to clean up toxic air, soil, and water. Not surprising, then, that Baiyang spent CNY 25 million (USD 4 million, EUR 3.2 million) in 2015 for a 51 percent stake in Guangxi Hong Sheng Yuan. The scale of the firm’s loan compared to Baiyang’s 2015 investment suggests the company’s business – or ambition – is growing.
It’s even more instructive to look at Baiyang’s 2017 accounts, which show that nearly half of the Baiyang group’s overall profit was contributed by another acquisition, Huo Xing Shi Dai (also known as Modern Star), a firm running a chain of schools teaching multimedia design. Also in 2015, Baiyang raised CNY 290 million (USD 45.8 million, EUR 37.3 million) through a private placing of shares to fund the expansion of its healthcare subsidiary, Guangxi Jia Ying Biotech Co.
Based in tropical Nanning, the capital of Guangxi Province, the firm is still one of the giants of China’s aquaculture sector. It farms and processes both tilapia and shrimp, and is the country’s top processor and exporter of tilapia. But Baiyang is clearly moving away from its roots, tapping into higher-margin activities, with some success.
Baiyang’s revenue rose 15.6 percent year-on-year in 2017 to CNY 2.39 billion (USD 377,500, EUR 307,000), with its strongest growth in the fourth quarter, where it rose 37.4 percent. That’s significant, because in the fourth quarter, the firm launched a new feed mill and finished integrating an education company it bought.
While a newly commissioned feed operation no doubt contributed to its performance in 2017, it’s clear that the company has staked much of its future on education, healthcare, and environment –three favorite themes with Chinese investors.
Fed up with reliance on changeable Western tilapia markets, back in 2015 Baiyang promised its investors it would improve profitability by consolidating its core businesses, while also expanding its healthcare and environmental protection activities.
Up to then, Baiyang’s strategy had been to use its position as a government-designated “dragon head” or strategically important enterprise – giving it preferential access to low-cost financing and subsidies – to expand its aquaculture and feed operations across the south. The firm bet that ultimate dominance of Guangdong, Guangxi, and Hainan, all major freshwater aquaculture producers, would give the company the scale to cut costs and make it China’s largest integrated seafood enterprise.
A glimpse at Baiyang’s financial records show that, in 2018, debt will be Baiyang’s biggest challenge. While its market capitalization of CNY 3.5 billion (USD 552.9 million, EUR 449.6 million) makes Baiyang one of China’s biggest seafood players, Baiyang has borrowed significantly to expand its presence right across the value chain, from processing to feed production to contract farming and processing of fish. Baiyang has also sought to build up its presence in the domestic food market with its "Bei Feng" brand of frozen tilapia fillets, introduced in order to blunt its dependence on fickle export markets. As a result, the firm’s balance sheet is now straining under the growing costs of servicing the debts the firm took on in expanding its operations over the past decade.
The company’s management must ensure that revenue from its new businesses grow at a pace that allows the firm to manage its debt load. But if its adventures in the waste treatment and education sectors continue to prove rewarding, Baiyang might choose to avoid the hard slog of building up domestic markets and choose to scale back or even sell some of its activities in the tilapia sector. That would totally remake the market and force buyers in places like the U.S. to reconsider their tilapia options.
