Durian, dubbed The King among all tropical fruits, has found a growing legion of fans in temperate China. Having tried different varieties of the fruit — from “Musang King” to “D24” to “Golden Pillow — during their holidays to Southeast Asia, many Mainlanders have acquired a taste of it.
According to United Nations data, China imported US$2.3 billion ($3.1 billion) worth of durians in 2020, a fourfold increase from 2017. And unfortunately for durian lovers in the region, demand from China for durians is expected to rise and rise, sending prices skywards.
In addition, out of China’s 1.4 billion population, less than 10% have tasted the thorny fruit so far, according to Cheng Meng, CEO of listed company NutryFarm, which wants to make the export of durians to China as its new key business.
In its annual report for FY2020 ended September 2019, NutryFarm’s chairman Terence Luk said that due to current travel restrictions amid the pandemic, several big Chinese companies have asked local fruit importers to help source for the fruit.
“While the current trading contracts are opportunistic, the group believes that it is a sustainable business with the demand of the Chinese market. As such, the fruit-trading business is a new business opportunity to counter the current state of the nutrition business and the failed venture into the internet business,” explained Luk.
Before adding the durian business into its repertoire, NutryFarm was solely in the business of distributing healthcare supplements in China. But the industry came under intense scrutiny from the Chinese government and regulations were tightened. This led to stunted growth, forcing the company to look for new businesses.
This diversification into durian exporting came on the back of Cheng becoming a substantial NutryFarm shareholder after he and another investor Alex Loo subscribed to new shares at four cents each in a placement exercise, raising $720,000 for the company. Cheng’s 13.3 million shares gave him a stake of 11.5% while Loo’s 5.7 million shares made him a 4.9% owner.
Cheng, 32 years’ old, was first made a non-executive director in November 2020 and took on the CEO role three months later. A Chinese national, he has the right background and experience to drive this new business.
Eight years ago, Cheng made his acquaintance with durians in Thailand when he was an engineer. Seeing how interest in the fruit was growing back in China, Cheng, whose family is also in the fruit trading business, decided to try his hands at exporting the fruit from Thailand to China.
Thorns of the durian trade
At first, Cheng thought the business was an easy one: just buy durians, send them to China and sell them at a big mark-up. However things didn’t work out and he found himself in debt when the business chalked up losses.
But rather than falling back on his engineering job, Cheng chose to double down. “I did what I needed to do and left that career to focus on the durian trade and do right by it,” he tells The Edge Singapore.
Cheng visited durian farms in Thailand, picked up Thai so he could communicate better with his suppliers and learn the ropes of the business. “Technical knowledge is important when dealing with fresh produce and this serves as a key barrier to this industry,” he says.
NutryFarm’s latest 2QFY2021 ended March was its first quarter which saw contribution from its durian business. The company’s fruit business contributed HK$27.9 million ($4.9 million) in revenue, representing more than half the quarter’s total revenue of HK$41.0 million. With this new contribution, the company also managed to record earnings of HK$457,000, compared to HK$5.0 million in losses a year ago.
Since FY2018, NutryFarm has recorded consecutive full-year losses and although the company is not completely out of the woods yet for FY2021, Cheng says, “Our health supplement business will still remain because I do see some positive outlook as we get used to the new regulations in China. The profit margins are also healthy. So, in the coming few years, our durian business will be our growth driver due to its popularity in China and higher sales volume.”
“I expect revenue to increase in 3QFY2021 as we fulfil more durian orders,” adds Cheng, as the company on June 18 announced that is has fulfilled its obligations to Shanghai Yuqu Trading for the purchase and shipment of 180 containers of fresh durians amounting to some RMB117 million ($24.4 million).
As of June 15, NutryFarm has shipped 227 containers of Golden Pillow durians from Thailand to China Railway Production Control (Chengdu), The lot represents about 38% of the 600 containers committed from March 1 to Dec 31. On June 21, NutryFarm secured new sales orders of about RMB195 million from Moonda (Beijing) Agriculture Science and Technology for 300 containers of fresh durians from Thailand.
In an unrated report by KGI on July 9, analyst Megan Choo likes NutryFarm for its durian diversification and believes this may be a chance for the group to turn around earnings as the new durian business largely boosted 2QFY2021’s results. Choo noted that revenue for the second quarter came in at an “outstanding” HK$40.9 million, almost equivalent to full-year revenue for FY2019 as well as full-year FY2020’s annualised revenue.
Correspondingly, shares in NutryFarm have risen some 2.63% year to date to close at 39 cents on July 21. This gives the company a market capitalisation of $45 million.
Have your fruits in more than one basket
With this growth momentum, NutryFarm is stepping up a gear by forming new ventures. It recently entered into a JV agreement with local durian retailer, Kong Jun Durian to expand its durian business in Singapore. Under the JV, NutryFarm will supply the pre-packaged durians and Kong Jun will leverage its strong retail experience and extensive sales channels to sell the fruit.
Kong Jun was founded by Ang Seck Puan who has over 50 years of experience trading fruits. His son, Joseph Ang, who is also managing director of the JV company tells The Edge Singapore, “There is a huge market for durians in Singapore. Cheng and ourselves decided that we should launch pre-packaged frozen durians, so that during the off-peak seasons, consumers can enjoy durians from Thailand and Malaysia every day.”
According to Joseph, the JV company has already started harvesting the fruits and packaging them. They intend to “capture the market as soon as possible” and will be launching the products on e-commerce platforms and supermarkets. The duo intends for their product to launch some time in September, just after the durian season is over.
Ultimately, the JV plans to bring these pre-packaged frozen durians to China. “My father’s reputation for his durians have definitely spread to China,” claims Joseph. “Before Covid-19, many tourists from China sought my father for vacuum-packed durians to bring back to China. Since Cheng also acknowledges our presence in China, we do target for our durians to enter the China market,” adds Joseph.
Apart from this joint venture, NutryFarm has also secured a sole distributorship of Malaysia’s DKING’s Musang King frozen durian pulp in Singapore for a period of two years from June 24.
Naturally, Cheng is positive that demand for durian in China will keep growing. To capture this expanding market, he has already drawn up a two-phase plan. First, NutryFarm will focus on building its brand in the durian market. And, if all goes well, Cheng will next expand its range of fruits and enter new markets. Cross-trading is also in the books, as Cheng hopes to bring fruits from China into Singapore.
“Personally, I believe that there is high growth potential in this business. I would like to establish NutryFarm as a leading player in the region. Once that platform has been established, we can move on to offer other varieties of fruits and export to other countries such as the US,” says Cheng.
Photo: NutryFarm
