Summary of Key Points
Fubei Pet, once dubbed the "Foxconn of the pet food industry," attempted to relaunch its stock market listing on the Hong Kong Stock Exchange (HKEX) in June 2026, nearly three years after withdrawing its application for an A-share IPO. However, the company is facing multiple challenges: its revenue has remained stagnant at around 1 billion yuan for three consecutive years (falling short of the industry's double-digit growth rate), and its net profit in 2025 decreased by 40.2% year-on-year. Despite a significant reduction in cash on hand and a halving of its operating cash flow, Fubei distributed a substantial dividend of 100 million yuan—more than its annual net profit—while the controlling shareholder took a large portion of it (70%). Additionally, the company has seen a sharp decline in gross margin and faces compliance issues such as false information disclosure during its A-share application and underpayment of social insurance contributions. These factors have made its HKEX listing process highly controversial.
1. Switching to the HKEX IPO with Stagnant Performance and Reduced Profit
Fubei Pet is a leading domestic pet food contract manufacturer, holding the second-largest market share in the third-party manufacturing sector. However, its performance over the past three years has been unsatisfactory:
- Stagnant Revenue: Revenues in 2023, 2025 were 1.046 billion yuan and 1.033 billion yuan, respectively, remaining around 1 billion yuan for three consecutive years. The domestic pet food industry has been growing at a double-digit rate, indicating that Fubei's business expansion has hit a bottleneck.
- Sharp Profit Drop: Net profit in 2025 plummeted from 164 million yuan in 2024 to 98.23 million yuan, a decrease of 40.2%. The net profit margin also dropped from 15.9% to 9.6%. In other words, the company is making half as much money from the same amount of sales.
2. Controversial Large Dividends: The Controlling Shareholder Takes the Majority, While Cash Flow Is Under Pressure
The most controversial aspect is Fubei's decision to distribute a large dividend despite financial difficulties:
- Dividends Exceeding Annual Net Profit: With a net profit of only 98.23 million yuan in 2025, the company paid out 100 million yuan in dividends, covering the shortfall with accumulated profits from previous years.
- The Controlling Shareholder Gets the Biggest Share: The controlling shareholder, Wang Yingchun, owns 71.11% of the company's shares. Based on the 100 million yuan dividend, he would receive 71.11 million yuan, taking a significant portion of the profits.
- Dividends While Raising Capital: Fubei's cash on hand decreased from 626 million yuan in 2023 to 309 million yuan in 2025 (a reduction of over 50%), and its operating cash flow was halved to 83 million yuan. Yet, it is still seeking to raise funds for capacity expansion through this HKEX IPO. Naturally, investors wonder if the controlling shareholder intends to liquidate assets.
3. Reasons for the Halving of Cash Flow: Pressure from Upstream and Downstream Parties + Inventory Costs
The tight cash flow situation is mainly due to issues with both upstream and downstream partners as well as internal operations:
- Long Payment Terms from Downstream Customers: Fubei's major customers, which are often platform-based companies (such as pet brand manufacturers), have strong bargaining power and extend payment periods. To maintain orders, Fubei has to allow them to pay on credit, resulting in delayed cash receipts.
- Upstream Suppliers' Demand for Advance Payments: In 2025, prices of raw materials like meat powder and grains increased, giving suppliers more leverage. They required advance payments before delivering goods, forcing Fubei to spend more cash on purchases.
- Inventory Costs: With the launch of new factories, Fubei stocked up on raw materials in anticipation of price increases. However, sales of its own brands declined, leaving excess inventory that occupied significant cash and hindered capital turnover.
- High Marketing Expenses: To promote its own brands, Fubei spent 138 million yuan on online advertising, live broadcasts, and channel subsidies in 2025, further depleting its cash reserves.
4. Decline in Gross Margin: Shrinking High-Margin Business, Uncontrollable Contract Manufacturing Costs
Fubei's overall gross margin dropped from 37.9% to 31.6% in 2025 (a decrease of 6.3 percentage points). The main reasons are:
- Deteriorating Business Structure: Fubei operates in two segments: ODM (custom manufacturing for others under their brands, with lower margins) and OBM (own-brand products with higher margins). In the past two years, the proportion of low-margin ODM business increased from 58.6% to 61.7%, while the revenue from its high-margin own-brand business decreased by 19%, dragging down overall profits.
- Sharp Drop in Contract Manufacturing Margins: Due to rising raw material prices and the dominant position of its top five customers (accounting for 40% of revenue), Fubei was unable to pass on the increased costs, leading to a significant decline in ODM margin from 30.4% to 23.1%.
- Idle Capacity: The new factories, with utilization rates of only 20.3% and 28.9%, resulted in higher per-unit costs due to fixed expenses such as rent and equipment depreciation, further reducing profits.
5. Compliance Issues: Past Misleading Information on the A-share Application + Underpayment of Social Insurance
Fubei's listing process is also marred by historical issues:
- False Information Disclosure: Before withdrawing its A-share IPO in 2023, the Shanghai Stock Exchange discovered that Fubei had lied in its responses to inquiries, claiming it had terminated a bet agreement with a venture capital firm earlier than actually. As a result, Fubei and its then-secretary were issued a warning, leading to the withdrawal of the application materials.
- Underpayment of Social Insurance: The prospectus admitted that the company failed to pay full social insurance contributions for some employees over the past three years, with an accumulated shortfall of approximately 5.4 million yuan. Although the controlling shareholder has promised to cover the difference, this could still result in fines from tax and labor authorities, posing obstacles to the listing process.
Fubei's HKEX IPO appears to be a last-ditch attempt to raise capital amidst declining performance, tight cash flow, and compliance concerns. The key questions for investors are whether these issues can be resolved, and whether the funds raised will truly be used for capacity expansion or merely for distributing dividends to shareholders.