Mengniu Dairy is in trouble, and its revenue and net profit are all overtaken by Yili, and it has frequently pushed mergers and acquisitions to increase revenue without increasing profits, and whether it can "fly high" remains to be examined

Yangtze River Business Daily News ● Yangtze River Business Daily reporter Shen Yourong

Lu Minfang stepped down as president, and Chinese dairy giant Mengniu Dairy (02319. HK) overnight changed the coach, which caught the market off guard.

The sudden change of leadership of listed companies often has the same footnote - the performance does not meet expectations. Mengniu Dairy is exactly like that.

On March 26, the 2023 annual report disclosed by Mengniu Dairy showed that the company's operating income was 98.624 billion yuan, a year-on-year increase of 6.5%, and the net profit attributable to shareholders of the parent company (hereinafter referred to as "net profit") was 4.809 billion yuan, a year-on-year decrease of 9.31%.

In 2016, Lu Min was appointed to take over as president of Mengniu Dairy. He will catch up with Yili shares as a driving force, and put forward the goal of 2020 revenue and market value of 200 billion yuan.

Becoming the owner of Yashili, acquiring Modern Dairy, and holding Microcolando, Mengniu Dairy's assets exceeded 110 billion yuan, but its profitability declined.

After a sharp drop on March 27, Mengniu Dairy's share price fell again on March 28, with a market value of HK$66.1 billion.

The goal of double 100 billion yuan has been missed, how will the new president Gao Fei break the situation? The market expects Gao Fei to lead Mengniu Dairy to "fly high".

Lu Minfang stepped down with regret

On the evening of March 26, Mengniu Dairy officially announced that in accordance with the group's strategic arrangement, Lu Minfang was promoted to vice chairman of the company, stepped down as president and continued to serve as executive director, and Gao Fei, former senior vice president and head of the room temperature business department, took over as president and served as executive director.

At the same time as Lu Minfang's resignation as president, there was also an annual report of Mengniu Dairy. The report fell short of market expectations.

The annual report shows that in 2023, Mengniu Dairy will achieve operating income of 98.624 billion yuan, a year-on-year increase of 6.5%, and a net profit of 4.809 billion yuan, a year-on-year decrease of 9.31%.

At the performance briefing on March 27, Lu Minfang said that the decline in net profit was mainly related to the impairment of large bags of powder caused by the storage of excess fresh milk powder, dividend withholding tax and intensified market competition, and increased sales expenses.

"At present, the industry is temporarily slowing down, and the development of China's dairy industry has entered the second half stage, but because the domestic dairy industry structure is too simple, the industry has not 'reacted'. Lu Minfang said.

Lu Minfang, 55 years old this year, became the president of Mengniu in September 2016 and has been working for 8 years.

According to Mengniu's past practice, the term of office of Mengniu's president is generally three years, and the maximum term of office is two consecutive terms. In September 2022, Lu Minfang has already served two terms. At that time, Mengniu issued an invitation to Lu Min for the "next 6 years". Unexpectedly, in 2024, he was suddenly replaced.

On September 15, 2016, Sun Yiping, who had been at the helm of Mengniu for more than four years, suddenly resigned, and Lu Minfang was ordered to be in danger. When he took over, Mengniu was in an unprecedented predicament.

In the era of Sun Yiping, Mengniu Dairy began to stall, and in 2016, the operating income was 53.779 billion yuan and the net profit loss was 751 million yuan. This is Mengniu Dairy's only loss since 2008.

Lu Min is ambitious, and in 2017, he proposed a goal of double 100 billion, that is, by 2020, the company's operating income and market value will reach 100 billion.

In 2020, Mengniu Dairy's operating income was 76.035 billion yuan, and the operating income in 2023 is the closest to the 100 billion target, but it has been three years late.

On March 27, or affected by lower than expected performance, in the secondary market, Mengniu Dairy's share price fell 9.92%, and on March 28, the company's share price fell another 1.64% to close at HK$16.80 per share, with a market value of HK$66.1 billion.

Of course, on January 8, 2021, Mengniu Dairy's market value reached HK$212.6 billion. It has now shrunk dramatically.

The gap with Yili shares is widening

Mengniu people have a dream to catch up with Yili shares and become the "first brother" of China's dairy products.

Mengniu has also sat on the throne of the industry leader. In 1999, Niu Gensheng founded Mengniu, and in just eight years, Mengniu has grown into a global champion in liquid milk and China's dairy industry.

In 2007, Mengniu Dairy's operating income reached 21.318 billion yuan, surpassing Yili's 19.360 billion yuan, becoming the leader of China's dairy industry. This state of affairs remained until 2010.

In 2011, Mengniu Dairy's operating income was 37.388 billion yuan, losing the throne with a difference of 63 million yuan. In 2012, Yili's operating income was 41.991 billion yuan, while Mengniu Dairy's operating income fell to 36.080 billion yuan.

This year, Yang Wenjun's two terms of office have expired, and Sun Yiping, who used to work for Coca-Cola, became the third president of Mengniu Dairy. In 2014, Sun Yiping promoted Mengniu's acquisition of a 75.3% stake in Yashili at a cost of HK$11.3 billion.

However, in the Sun Yiping era, Mengniu stalled and Yili accelerated, and the gap between the two widened.

After Lu Minfang took over, in order to achieve the goal of double 100 billion, he carried out a series of drastic reforms and large-scale extension mergers and acquisitions.

Mengniu Dairy acquired Modern Dairy in 2017, Shengmu Hi-Tech in 2018, Microcolando from 2020 to 2021, and Danone's Shanghai cryogenic business in 2022.

Subsequently, Mengniu Dairy's operating income exceeded 60 billion yuan in 2017, approached 80 billion yuan in 2019, and approached 100 billion yuan in 2023.

However, whether it is operating income or net profit, the gap between Mengniu Dairy and Yili shares is still large.

In 2022, Yili's operating income will be 123.171 billion yuan. In the first nine months of 2023, Yili's operating income was 97.404 billion yuan, close to Mengniu Dairy's annual operating income.

The gap in net profit is even greater. In the first nine months of 2023, Yili's net profit was 9.380 billion yuan, nearly twice that of Mengniu Dairy.

At the same time, Mengniu Dairy's own profitability is also decreasing. In 2023, the company's operating income will increase by about 11 billion yuan compared with 2021, while the net profit will decrease by 217 million yuan.

It is worth mentioning that in 2023, although the dairy industry will usher in challenges, Yili shares will still perform well. In the first nine months of that year, Yili's net profit still maintained a double-digit growth rate.

How Goofy broke the game

Revenue can't catch up with Yili, the net profit gap is widening, what happened to Mengniu, how to break the situation?

According to the analysis of observers, the decline in profits of Mengniu Dairy in 2023 is due to the poor terminal sales of dairy products such as white milk and fresh milk, and the company has taken the initiative to reduce prices to promote the digestion of milk sources, resulting in rising costs;

Mengniu Dairy's own explanation is that the short-term slowdown in the growth rate of dairy products, the decline in raw milk prices, and the reshaping of online and offline channels have brought certain challenges to the dairy industry.

However, some analysts said that Mengniu's previous mergers and acquisitions did not meet expectations.

From the perspective of underlying assets, modern animal husbandry will have an operating income of 7.078 billion yuan and a net profit of 1.019 billion yuan in 2021, and by 2023, the operating income will increase to 13.484 billion yuan and the net profit will decline to 175 million yuan. At present, Mengniu owns 56.36% of the equity of Modern Dairy.

Mengniu holds a 36.51% stake in Microcolando and is its controlling shareholder. In 2023, Microcoland's operating income will decrease by 16.16% to 4.049 billion yuan, and the net profit will only be 63 million yuan, a year-on-year decrease of 53.90%, and after deducting non-recurring profits and losses, it will only be 7.1712 million yuan, a year-on-year decrease of nearly 90%.

So, after Mengniu's "old man" Gao Fei takes over, how to break the situation?

Gao Fei, 47, joined Mengniu in 1999 and has served as vice president of sales, general manager of sales, general manager of marketing, and vice president of the group.

Analysts said that at present, China's dairy industry is facing problems such as a phased surplus of raw milk and intensified competition in the industry, and has entered a growth bottleneck period.

The hope that Gao Fei brings to Mengniu and the market is that in addition to Gao Fei being the "old man" of Mengniu and having appeal, understanding the market and knowing how to market is Gao Fei's advantage. The big single product Trensu is made big by Gao Fei. "He is one of the people who knows Mengniu best. The above-mentioned analysts said that Gao Fei knows where Mengniu's problems lie and Mengniu's advantages, and believes that he will actively deal with them.

So, how will Gao Fei lead Mengniu to "Gao Fei"?

At the performance briefing on March 27, Gao Fei, who made his debut as president, said that Mengniu's strategy would not change. At the same time, he said that Mengniu will return to rational thinking. On the one hand, Mengniu Dairy will adjust its product mix to stabilize the overall price, and on the other hand, the company will continue to focus on improving profit margins, improving cash flow, and returning to shareholders as a whole.