半新股神冠 肉腸冚珍珠

Quoted from SCMP dated 31 Oct 2009

Shenguan hopes business sizzles

German statesman Otto von Bismarck once remarked that laws are like sausages - it is better not to see them being made.

While politicians are still making unsightly laws, companies such as Shenguan Holdings (Group) are finding sausages a prettier proposition. Indeed, for Shenguan, the humble snack food is finally proving a money-spinner after some hard years.

The former state-owned factory that produces the rubbery skins for sausages of all types has a market capitalisation of HK$7.34 billion following an initial public offering in Hong Kong last month.

The company is hoping sausages, considered by most to be a Western invention, will become just as popular as pot noodles as a quick snack on the mainland.

To be sure, Shenguan produces a lot of casings - enough of the material to stretch 13 times around the globe each year.

On paper, the Guangxi-based company appears to be another mainland enterprise that has simply borrowed foreign technology to produce for the mass market.

研發膠原卅年

However, the group has actually invested in collagen casing technology for 30 years. It has two wholly owned subsidiaries, Shenguan Biological and Shensheng Jiaoyuan, involved in everything from the construction of factories to production and research.

As Bismarck quipped, sausage-making is not for the faint-hearted. A strong material is needed to hold the filling in when the sausage is thrown into a pan or on to a barbecue.

Apart from collagen, cellulose and plastic are often used in the making of sausage casings. Collagen, the main protein in the connective tissues of animals, can be broken down and reconstructed again in different forms using an industrial process.

The use of collagen in food processing has increased as it is more hygienic and cheaper than using the intestines of animals - the traditional material used for sausages. Higher-quality and pricier collagen is often used in cosmetic surgery and medical science.

Shenguan uses only beef proteins to produce its casings, with the particular type of casings based on whether the sausages are instantly edible or if they need to be cooked. But in recent years, there have been technological advances in the manufacturing of pure pork collagen, considered safer than beef casings.

British sausage casings manufacturer Devro was the first to introduce pork protein casings three years ago, which can reduce the risk of bovine spongiform encephalopathy and Creutzfeldt-Jakob disease, directly related to beef.

Sausage casings makers worldwide are facing increasing costs and demand from meat processors for cheaper products.

門檻高競爭少

Shenguan chairman Zhou Yaxian said the barrier to entry was relatively high and there were no big competitors on the mainland at present. Shenguan's Western-style sausage casing products cost between 33 and 46 fen per square metre - lower than rival imports, it said.

At present, Shenguan's collagen sausage casings business depends almost entirely on mainland consumption of "Western-style" sausages, including cocktail sausages, frankfurters, salami, hotdogs and chicken sausages.

Last year, 87.1 per cent of the group's revenue came from making these sausages and 12.9 per cent from producing casings for Guangdong-style dried sausages.

Mainland consumers, who are now buying more high-quality food products such as milk and processed meat, are behind growing consumption of sausages.

"The Western-style sausages are really a new thing in China, especially among younger people," Zhou said.

將取代杯麵 成即食品新貴

She believes sausages will become more popular on the mainland and could replace pot noodles as the preferred convenience food.

Last year, the mainland consumed about 374,220 tonnes of processed meat products including sausages, an annual compound growth of 12.74 per cent from 205,450 tonnes in 2003, according to Access Asia, a research company.

Following its listing on the Hong Kong stock exchange, Shenguan increased its production lines to 116 from 106, taking its capacity to 2.42 billion metres of collagen casings. A further 50 lines will be added by next year, ensuring a minimum increase of 40 per cent in production capacity.

管理層製腸經驗豐

The factory runs 24 hours a day with more than 1,400 employees working in three shifts. Zhou joined the then state-owned Wuzhou Protein Factory as a technician in 1979.

"We could not choose what we wanted to do at the time," said Zhou, now 49. "I was sent by the authority to work in a laboratory in the factory after finishing college."

Zhou described the laboratory as tiny, with not many facilities. But the government was keen to develop its protein-manufacturing business.

Her first job was to remove the hair from the cattle's skin, which was then divided into layers and taken away for disinfection.

Making collagen requires processing of the inner skin of cattle. Roughly, a tonne of cattle skin can produce 80,000 to 100,000 metres of collagen casings. Only by trial and error over eight years did the factory finally have some success in producing the casings.

The collagen fibre from the inner skin is extracted by applying pressure, which transforms it into a dough. It is then sent into an extrusion machine to form tubular casings that are then dried. The casings then have to be reshaped at 70 to 80 degrees Celsius before packaging can take place.

"Initially, the casings were too thin," said Zhou. "We started testing again to see if we could make something that had just the right strength."

In 1989, the factory had a breakthrough when two machines bought from Poland helped standardise the casings and speed up the manufacturing process.

But Zhou and her colleagues found that the machines were not compatible with their feedstock, so they decided to construct their own machines based on the Polish models. It was not until 1995 that the production was finally trouble-free.

虧損國企MBO

"The factory was making losses all along," said Zhou. "It couldn't have survived if the government wasn't backing it up financially."

The company had several ownership changes, going from a state-run firm to being partly listed on the mainland from 1997 to 2000.

It returned to state ownership before becoming a private company in 2004, when business started to take off. That year, two key customers, Low Jee Keong, a Malaysian, and Wei Cheng, an American, bought the factory for 75 million yuan (HK$85.13 million) at an auction organised by the state government.

Zhou, who was made head of the factory in 1992, became a shareholder the same year and Wuzhou Shenguan was born. "I didn't want to give up," she said. "We had come a long way and it was special for me."

Even with the additional investment in expanded production, Zhou said it would be difficult for the company to meet growing demand for its products.

Last year, Shenguan sold 1.04 billion metres of casings, an annual compound growth of 51.7 per cent from 454.4 million metres of casings in 2006. Its top clients include Hong Kong-listed China Yurun Food Group from Nanjing and the country's largest meat processor, China Shuanghui Group.For the first half, Shenguan sold 783.7 million metres of casings.

The company raised HK$1.43 billion from a listing last month, attracting investment from China Life Insurance, a cornerstone investor that holds US$12 million worth of shares