Youyou says next step is an offering

Family members set to rake in millions when pickled chicken feet seller floats 79.5m shares

Chongqing-based Youyou Food Co, one of the country's largest distributors of pickled chicken feet, is planning an initial public offering which could make billionaires of its family owners.

The firm's IPO prospectus said 79.5 million shares will be offered, including those currently owned by Lu Youzhong and his relatives, who own 90 percent of the business or around 200 million shares.

If successful, Lu and family could be worth around 4.4 billion yuan ($675.4 million), according to a report by The Beijing News, based on a share price expected to be in excess of 22 yuan.

Analysts, however, cautioned that any flotation - one of an estimated 600 IPOs in the pipeline - might be considered risky, as Youyou's core business relies so heavily on the one blockbuster product: pickled chicken feet.

Youyou is currently listed on the National Equities Exchange and Quotations, better known as the New Third Board, an over-the-counter market for growth enterprises.

The company said in a statement that its IPO application had been accepted by the China Securities Regulatory Commission, and its shares have been suspended from trading on the NEEQ since Dec 16.

Youyou's market value on NEEQ rose to 4.2 billion yuan at its highest, but it had dropped to 2.84 billion yuan by the time the trading of its shares was suspended.

In the latest set of annual figures, its 2014 sales revenue was 880 million yuan with net profit of 119 million yuan. Pickled chicken feet contributed more than 75 percent of total revenue.

Youyou said in a statement on its website, however, that it has been developing new products to serve fast-changing market demands, including pickled peanuts, smoked bean curd and pickled chicken wings.

A research report by TX Investment Consultancy Co on the possible flotation said any business model that relies heavily on a sole product or service may be more exposed to risk.

"Such a heavy reliance may leave a business fragile when market demand shrinks drastically, especially when the product or service is not in solid demand."

According to a report from China National Food Industry Association, demand for prepacked snacks such as those defined as "leisure food" are also prone to decline during an economic slowdown.