The IPO on the main board of the Shanghai Stock Exchange was terminated, and a cow was adopted: voluntarily withdrawn based on the development strategy and market environment

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Blue Whale Financial Reporter Zhang Jinglun

On February 6, the Shanghai Stock Exchange (hereinafter referred to as the "Shanghai Stock Exchange") issued an announcement that the Shanghai Stock Exchange terminated its issuance and listing review in accordance with relevant regulations due to the withdrawal of sponsorship by the sponsor of Adopt a Cow Holding Group Co., Ltd. (hereinafter referred to as "Adopt a Cow").

It also means that the IPO journey of adopting a cow, which lasted for more than a year, is officially over.

Termination of the IPO

Regarding matters related to the termination of the IPO, Adopt a Cow responded to the Blue Whale Financial Reporter, "The company's voluntary withdrawal of IPO application materials is based on the results of comprehensive and prudent consideration of the company's development status, overall development strategy and market environment, and the company's current operating situation is stable." For further progress, please pay attention to the company's subsequent disclosure of public information."

According to the official website of Adopt a Cow, its founder is Xu Xiaobo, who established the first large-scale modern ranch in the ancient city of Hebei Province in 2014 and officially established the Adopt a Cow brand in Hangzhou in November 2016. The company takes dairy farming and milk product sales as its core business, integrates modern dairy farming, tourism, feed processing and dairy product processing and sales, and is a super-large pasture with a high degree of integration of primary, secondary and tertiary industries and a large-scale agricultural industrialization consortium with close interests.

At the beginning of July 2022, the adoption of a cow officially submitted a listing application, planning to be listed on the main board of the Shanghai Stock Exchange, and plans to raise 1.851 billion yuan, which will be invested in the construction of Haibo Rige Smart Ranch, brand building, marketing promotion, information system upgrading and replenishment of the company's operating funds. On February 28, 2023, adopt a cow switched to the registration system and re-submitted its listing application to the Shanghai Stock Exchange until the IPO was terminated.

Chen Xiaolong, an investor in the food and beverage and catering industry, told the Blue Whale financial reporter that at present, food and beverage companies are listed on the main board of the Shanghai Stock Exchange and Shenzhen Stock Exchange, and food and beverage companies are not the focus of development at this stage, and so far in 2023, many companies have withdrawn their materials and terminated their IPOs.

Zhu Danpeng, an analyst of China's food industry, pointed out that at present, it is very difficult for food and beverage to list A-shares. Although the overall development of adopting a cow is very healthy and benign, the overall profit margin is also good. However, for the time being, it is still very difficult to list on the A-share market.

"The termination of the IPO is not a non-listing, and the possible path may be to be listed in other places, such as the Hong Kong Stock Exchange and the Beijing Stock Exchange, which are all options at the moment. Chen Xiaolong said that if a company prepares to go public for many years and eventually does not go public, it may seriously dampen the enthusiasm of the key personnel who have been incentivized, and may cause turmoil in the team; in addition, the financing channel may also be affected, and if the company accepts strategic investment, there may be pressure from investors. As for the combined pressure from all sides, it will be relatively large, and it will often take years for companies to digest these effects.

Launched an adoption model

Looking back at the development of adopting a cow, it is inseparable from its successful marketing strategy.

The melamine scandal in China in 2008 led to a crisis of trust between many Chinese consumers and dairy manufacturers, with more and more people choosing to import milk powder and pay high prices just to drink a sip of "safe milk". As a result, Xu Xiaobo made up his mind to "make a cup of safe and good milk", and launched the "Adopt a Cow" brand.

With the novel concept of "adopting" dairy cows and the propaganda of "ensuring quality from the milk source", the marketing strategy of adopting a cow accurately hit the psychology of consumers and opened the way to break the situation.

In just three years, the number of Tmall fans has gone from 0 to 10 million, and the official WeChat account of Adopt a Cow also said that the company is positioned to raise cows for users and encourage consumers to start the journey of adopting cows. But in fact, it will not allow consumers to "adopt" a cow, but provide consumers with three modes: cloud adoption, joint adoption and real-name adoption, and consumers can experience the adoption model through cloud cattle games and cattle partner models.

According to the prospectus, the revenue of adopting a cow in 2019, 2020 and 2021 will be 865 million yuan, 1.650 billion yuan and 2.566 billion yuan respectively, the net profit attributable to the parent company will be 108 million yuan, 145 million yuan and 140 million yuan respectively, and the non-net profit will be 103 million yuan, 123 million yuan and 125 million yuan respectively. In the first half of 2022, the revenue of adopting a cow was 1.597 billion yuan, the net profit was 94.195 million yuan, and the net profit after deducting non-profits was 50.26 million yuan.

However, with the rapid growth of performance, the business model of adopting a cow has also faced a series of controversies, including the model of pulling heads, sharing commissions, and receiving rewards.

On January 12, 2023, the China Securities Regulatory Commission (CSRC) issued the "Feedback on the Application Documents for the Initial Public Offering of Adopting a Cow Holding Group Co., Ltd.", which raised 48 questions, including requiring the adoption of a cow to disclose the specific circumstances of the business model related to the adoption of dairy cows, whether customer acquisition and business development involve pyramid schemes, and whether the above-mentioned relevant models or activities are "illegally absorbing funds by means of substitution breeding, leasing breeding, joint breeding, etc." whether it involves illegal fundraising or illegal public offering business, and whether there are disputes or potential disputes.

In the latest prospectus, Adopt-a-Cow responded: the activities carried out by the company in cooperation with third-party e-commerce are all aimed at promoting and selling the company's milk card business, and the cooperative e-commerce named the activities as "ranch co-builders" and "joint ranchers", aiming to increase the participation of milk card buyers.

However, in the prospectus, Adopt-a-Cow did not respond to the invitation and reward promotion activity in 2020, but insisted that the company, its partners and participants were all based on the premise of real commodity transactions, and there were no pyramid selling behaviors identified in the "Regulations on the Prohibition of Pyramid Selling" and the "State Administration for Industry and Commerce's Risk Early Warning Reminder on New Pyramid Selling Activities" such as "developing subordinates", charging "entry fees", and "hierarchical remuneration".

In the view of dairy analyst Song Liang, the "adoption" model of adopting a cow is essentially no different from the membership system of other brands, the brand is only through this form to achieve the purpose of attracting fans, increasing consumer stickiness, and narrowing the distance with consumers, the so-called "adoption" is more of a marketing means.

The "own milk source" controversy

At the same time, the source of milk is also a point of contention.

Judging from the past publicity, adopting a cow has always emphasized "its own milk source", however, the prospectus has exposed that its previous "own milk source" publicity may be just a gimmick, and it mainly adopts a production model combining independent production and outsourcing processing.

According to the prospectus, based on the strategic layout of development and its own production capacity limitations, the company adopted the mode of outsourcing processing during the reporting period. The company sends raw materials to the subcontractor, and the subcontractor processes them into the company's finished products according to the company's requirements and charges a certain processing fee.

From 2019 to the first half of 2022, the proportion of pure milk outsourcing production was 100%, 92%, 36% and 10%, respectively, and the proportion of yogurt outsourcing production was 100%, 96%, 35% and 31%, respectively. Bright Dairy, Junlebao, Zhongken Huashan Mu, Beinmei and Jiabao Dairy are the top five subcontractors to adopt a cow, providing pure milk, yogurt and milk powder products.

Adopt-a-cow explained that since the second half of 2020, with the completion of the construction and production of the company's Shandong factory, the company has gradually formed a production model based on independent production and supplemented by outsourcing processing, and the proportion of overall outsourcing processing has gradually decreased. In addition, for products with a relatively small proportion of revenue, such as milk powder and low-temperature milk, the company has not yet built corresponding production lines, and has adopted a production mode based on outsourcing processing. During the reporting period, it was necessary and reasonable for the company to adopt the production mode of outsourcing processing.

According to the prospectus, as of the end of June 2022, the company has successively established 7 modern self-owned and joint dairy farms and 1 dairy digital intelligence plant in Hebei, Heilongjiang, Shandong and other places, with a total of more than 60,000 dairy cows, effectively ensuring the stable supply of high-quality milk sources, and has gradually formed a production model based on independent production and supplemented by outsourcing processing.

At present, the domestic dairy industry is fiercely competitive, and the market is in the competitive situation of Yili, Mengniu "two supers", and some local dairy enterprises "how strong". In addition to "storytelling", how to adopt a cow to gain a firm foothold in the industry through the improvement of its own product value and supply chain construction may be a question that enterprises should think about.