Oriental Rise Holding Ltd. recently made its Nasdaq debut with promising performance, marking a significant moment for traditional tea lovers. The company's IPO raised $7 million, with plans to expand its cultivated land by 50%, signaling a bold move against the dominant bubble tea market. Investors showed strong interest, boosting the stock by 50% on its first trading day. Unlike the trendy bubble tea ventures by companies like ChaBaiDao and Nayuki, Oriental Rise focuses on cultivating and selling white tea leaves, a sector underrepresented in public markets. This IPO places the spotlight on a traditional segment amidst China's prioritization of tech industries.
China, known for its rich tea cultivation history, sees fewer traditional tea producers on its financial stage. Despite high-tech industry focus, tea production has significant potential due to its fragmented market, primarily composed of small producers in mountainous regions. Oriental Rise is unique in its focus on white tea, less known internationally than green or black tea. Given its anti-oxidant benefits and subtle taste, white tea is experiencing rapid market growth in China, with sales climbing over 32% annually between 2017 and 2021. By 2026, annual sales are expected to hit 16 billion yuan, showcasing vast growth potential.
Oriental Rise, operating farms in South China’s Fujian province, has maintained steady revenue around $24 million annually but faced land limitations impacting growth. Collaborating with local villages, the company’s contractual agreements are crucial for success amidst fluctuating land policies. Such partnerships are standard in China, where village committees typically control land resources. The firm's stable gross margin, rising from 52% to 53%, is a testament to effective operations, although expansion is necessary to meet demand and improve economies of scale.
With surplus demand forcing it to turn away significant business, Oriental Rise plans to utilize its IPO funds for a major expansion. The firm holds cash reserves of $36.7 million, up from $25.7 million the previous year, providing a solid financial foundation. It manages 7.2 square kilometers of land currently, with plans to acquire an additional 3.5 square kilometers, supported by letters of intent with local villages. The estimated cost of 87.6 million yuan for this acquisition is set to come from both IPO proceeds and cash flow. Moreover, a new processing plant is under construction, requiring a further investment.
Oriental Rise’s stock surged significantly on its debut day against a backdrop of declines in the MSCI China Small-Cap Index, affirming investor confidence. The company now boasts a market value of about $132 million, with a price-to-earnings ratio of 13, lower than its industry counterparts from India. This suggests possible growth opportunities for Oriental Rise, attracting investors with a novel tea offering in the western markets. This narrative underlines a traditional tea resurgence, with Oriental Rise at the helm, blending historical legacy with modern financial strategies.
