In 2021, China Feihe (06186. HK) handed over a mixed financial report.
Recently, China Feihe Dairy Co., Ltd. (hereinafter referred to as "China Feihe") released its 2021 financial report, with annual revenue of 22.78 billion yuan, an increase of 22.5% year-on-year, but unexpectedly, at the moment of favorable policies and consumption upgrades, the profit scale of China Feihe is declining, and the net profit attributable to the mother in 2021 is 6.87 billion yuan, down 7.61% year-on-year.
In 2021, China Feihe invested 430 million yuan in research and development, a sharp increase of 60.5% year-on-year, but at the same time, the marketing cost of China Feihe was staggering, 15.6 times its R&D investment. According to the performance report, in 2021, China Feihe's sales and distribution expenses increased by 27.9% from 5.264 billion yuan in 2020 to 6.729 billion yuan in 2021.
In the capital market, China Feihe has not gained more recognition from investors. It is reported that China Feihe's stock price climbed from the closing price of HK$7.075/share since its listing on November 13, 2019 to the highest price of HK$24.966/share on January 21, 2021, and then "fluctuating" declined, as of the close of trading on April 8, Feihe's stock price closed at HK$7.71/share, compared with the highest price of HK$24.97 last year, the stock price plummeted by 69.1% in more than a year, and the market value "shrank" by nearly HK$153.7 billion, equivalent to about RMB124.8 billion.
At present, the problem facing China Feihe is, how to continue to maintain rapid growth in the future. On the one hand, just like climbing a mountain, the faster it goes up, the slower it will be, and the challenges faced by the flying crane after it becomes larger will become larger; on the other hand, with the decline of the infant market, can the high-end flying crane milk powder fly again?
For the impact of the decline in profits and the low decline in stock prices, on April 8, a reporter from the Yangtze River Business Daily sent an interview to China Feihe, but the other party did not reply as of press time.
Gross profit margin of more than 70% comparable to "Moutai"
As the mainland's birth population has been declining year after year, the performance growth rate of China Feihe has inevitably declined.
According to the financial report data, from 2017 to 2020, the operating income of China Feihe was 5.893 billion yuan, 10.404 billion yuan, 13.768 billion yuan and 18.592 billion yuan, respectively, with a year-on-year growth rate of 58.07%, 76.52%, 32.04% and 35.5% respectively.
2021 is also considered to be the worst year in the milk powder industry market in recent years, although the increase in concentration has allowed the head milk powder brand to maintain growth, but the performance growth rate has also been affected. Feihe's announcement shows that in 2021, China Feihe achieved revenue of 22.78 billion yuan, an increase of 22.5% year-on-year, and it can be seen that the revenue growth rate of China Feihe last year was much lower than that of previous years.
In terms of earning power, China Feihe achieved a net profit of 6.915 billion yuan in 2021, a rare decline, down 7.61% year-on-year. If you exclude the purchase proceeds of the original ecological animal husbandry acquired in 2020, the net profit increased by 21.2% year-on-year.
For the impact of the low birth rate on performance, China Feihe's response measure is to continue to promote high-end. In the financial report, China Feihe emphasized the contribution of the revenue growth of high-end infant formula milk powder products to the performance.
In terms of sub-categories, in 2021, Feihe infant formula product revenue was 21.515 billion yuan, an increase of 21.7% year-on-year; other dairy products and nutritional supplements revenue was 991 million yuan and 270 million yuan, an increase of 63.3% and a decrease of 13.4% year-on-year.
It can be found that infant formula milk powder is an absolute contributor to the revenue of China Feihe, accounting for 94.4% of the company's total revenue.
Among them, the proportion of high-end products has increased year by year. The Yangtze River Business Daily reporter noted that from 2014 to 2020, the proportion of feihe's ultra-high-end product revenue represented by Xingfeifan and Zhenzhi organic increased from 10% to 63% of infant formula.
Liu Hua, vice chairman and chief financial officer of China Feihe, disclosed that in 2021, Xingfeifan accounted for 49% of the overall revenue, reaching 11 billion yuan, an increase of 12% year-on-year.
From the perspective of gross profit margin, China Feihe, which has been promoting high-end, is still proud of the crowd. In 2021, the overall gross profit margin of Feihe was 70.3%, down 2.2% year-on-year. Among them, the gross profit of infant formula milk powder was as high as 15.588 billion yuan, an increase of 19% year-on-year, and the gross profit margin was as high as 72.4%, which can be called "Maotai" in the field of milk powder, but this data is still 1.7 percentage points less than the gross profit margin of 74.1% in the same period of 2020.
For the reasons for the decline in the gross profit margin of the infant milk powder business, Cai Fangliang, president of China Feihe, said that the main reason is that the company has been pushing high-end products in the past two years, and the proportion of children's milk powder has become larger and larger last year, and the gross profit of ultra-high-end products Xingfeifan is higher than that of high-end products and children's milk powder, so with the growth of high-end products and children's milk powder, it will affect the overall gross profit margin.
Spend 6.7 billion a year on marketing
According to the data, the predecessor of China Feihe is Zhao Guang Farm Laobalian Dairy Factory, which was established in Qiqihar City, Heilongjiang in 1962, which is one of the earliest milk powder manufacturing enterprises in China, and then registered the "Feihe" trademark in 1984, and established the group's first member company with business operations "Heilongjiang Feihe Co., Ltd." 12 years later.
Since entering the 21st century, China Feihe first reorganized its international business, then successfully landed on the Hong Kong Stock Exchange in November 2019, and completed the acquisition of 71.26% of the equity of Original Ecological Animal Husbandry Co., Ltd. the following year, realizing the comprehensive layout of milk powder products.
Like all FMCG companies, marketing is very important for China Feihe's performance pull. From 2017 to 2019, Feihe's sales and distribution expenses basically cost 30% of its annual revenue. In 2021, the cost of China Feihe increased by 27.9% year-on-year to 6.729 billion yuan, an increase higher than the growth rate of revenue.
China Feihe explained in its earnings report: "Our sales and distribution expenses were mainly due to the increase in the cost of related offline sales and promotional activities. ”
But in the eyes of consumers, on the one hand, money is used to build and maintain sinking market "channels". According to the financial report, as of December 31, 2021, China Feihe mainly sold products through the distribution network of more than 2,000 offline customers across the country, and the revenue generated by the sales of these offline customers accounted for 85.8% of the total revenue of dairy products. This is enough to see how important the "channels" that Feihe has accumulated offline are.
On the other hand, in 2021, China Feihe held more than one million face-to-face seminars and spent a lot of money online to interact with consumers, which enabled Feihe to gain 2.266 million new customers in 2021.
Compared with spending nearly 7 billion yuan on marketing, China Feihe has invested much less in research and development, the former is 15 times that of the latter. According to the data, in 2021, China Feihe's R&D investment was 430 million yuan, an increase of 60.5% year-on-year. Although the growth rate is good, the proportion of total operating income is only 1.9%, which is in stark contrast to the high investment in marketing, and the investment in research and development is less than 6% of sales and distribution expenses.
"Heavy marketing, light research and development" has made China Feihe face many doubts in the past, marking the technical content of its milk powder with a question mark. However, China Feihe does not think so, saying that in 2021, it has published 39 articles in international first-class journals and domestic core journals, authorized 105 patents, and published 39 papers, covering breast milk, intestinal flora, clinical trials, etc.
In addition, after earning so much, dividends are naturally indispensable. According to the performance report, China Feihe will pay a final dividend totaling HK$1.543 billion (equivalent to RMB1.256 billion) at HK$0.1733 per share. Previously, in September 2021, China Feihe also distributed an interim dividend of HK$2.651 billion (about RMB2.207 billion) at HK$0.2973 per share. For the whole year of 2021, China Feihe paid a total dividend of 3.463 billion yuan. The controlling shareholder of China Feihe is Chairman Leng Youbin, so it is also the biggest beneficiary of the dividend.
Industry insiders said that even if China Feihe occupies the advantage of sinking market channels, it is difficult to avoid the increase in marketing expenses brought about by it in the future, which directly affects profits. At the same time, with the disappearance of the demographic dividend, the competition between milk powder companies will intensify, and the competition between major brands in the Chinese market will become more and more intense.