Lesening’s Parent Company Closer to IPO

In June this year, Dencare officially submitted a prospectus to be listed on the main board of the Shenzhen Stock Exchange, with CITIC Capital as the sponsor.

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Lesening’s parent company Chongqing Dencare Oral Care Products Co.(hereinafter referred to as Dencare) received feedback from the China Securities Regulatory Commission on its initial public offering of stock application documents, with a total of 31 items in two categories: regulatory issues and information disclosure issues.

The prospectus shows that Dencare mainly engaged in the research and development, production and sales of oral care products. It currently has a well-known brand of oral care Dencare, Lesening, as well as high-end professional oral care brand Yi Yan, children's oral care brand Beilele, high-end baby oral care brand Monyum. Its main products cover toothpaste, toothbrushes, mouthwash, and other oral cleaning care products.

The feedback on the normative issues, and 16 disclosure issues on Dencare. These include requiring Dencare to verify the previous equity transfer and mixed ownership transformation and verify whether there is any loss of state-owned assets. Dencare is required to disclose whether it has all the qualifications and licenses required to carry out business and disclosed possible pollution in production, whether subsidiaries and shareholders at all levels have received penalties, detailing the process of successive capital increases and share transfers, etc.

Regarding the revenue data, the SFC requested Denkang Oral to explain the reasonableness of the decline in revenue of adult toothbrush products in 2020, but the increase in revenue of other products in the same year; to supplement the disclosure of the reasons for the decline in the unit price of children's toothbrush year by year; to explain whether the trend of changes in revenue and unit price of various products is in line with the current market situation and the specific composition of other revenue; to further explain the composition of costs and the difference in gross margin, etc.

On the issue of information disclosure, the China Securities Regulatory Commission requested to explain whether the collection policy of payment before delivery to distributors is in line with the industry practice, analyze and disclose the reasons and reasonableness of the changes in the carrying amount of inventories during the reporting period and disclose the age and turnover rate of inventories.

According to the prospectus, the core brand of Dencare Lesening has a market share of about 60% in the segment of anti-sensitive toothpaste. According to Nielsen's offline retail statistics in 2021, the market share of Lesening ranked fourth in the industry and second among Chinese local brands. In 2021, Dencare's total revenue was 1.143 billion yuan(about $157 million), up 10.97% year-on-year. Its net profit was 119 million yuan(about $16.3 million), up 24.79% year-on-year.

From an industry perspective, in the oral care segment, according to Nielsen retail research data, China's toothpaste category market is relatively concentrated and the overall sales scale of the toothpaste market in 2021 is 33.980 billion yuan(about $4.7 billion), an increase of 0.86% compared to 2020. In the overall market, the top five manufacturers such as Yunnan Baiyao, DARLIE, P&G (Crest), Dencare (Lesening) and Colgate have a market share of 59.50%. In addition, the relevant companies are Weimeizi (Saky), Unilever (Zhonghuayagao), GSK (Shushida), Japan's Lion, South Korea's LG, NICE Group, Liby Group, Liangmianzhen and so on.