Missing the "double 100 billion", can the fifth "head" lead Mengniu to "fly high against the wind"?

Source: Mengniu official website

If he wants to continue the battle of "double 100 billion", what strategy will Gao Fei adopt to bring Mengniu back to the growth track, he must quickly find a new solution to growth.

Miao Ye Sun Yige / from Shanghai

Mengniu ushered in the fifth "head".

On the evening of March 26, Mengniu Dairy announced that Vice President Gao Fei succeeded Lu Minfang as the company's new president and served as an executive director. At the Mengniu performance meeting held the next day, Gao Fei and Lu Minlet hold hands tightly together.

"When you see the company announcement, you may be a little surprised. Lu Minfang explained that the change of president is a decision made by the board of directors based on medium and long-term strategic considerations, releasing a signal and confidence to make Mengniu bigger and stronger.

Synchronized with the "change of coach", Mengniu handed over the "report card" for 2023. According to the data, Mengniu's revenue last year was 98.624 billion yuan, a year-on-year increase of 6.5%, and the net profit attributable to the parent company was 4.809 billion yuan, a year-on-year decrease of 9.3%. This also means that Mengniu has once again missed the "double 100 billion" goal proposed in 2017.

The capital market has responded with a sharp fall. At the close of trading on March 27, Mengniu Dairy's share price fell 12.76% to a closing price of HK$16.54, which was the lowest point of Mengniu's share price since the end of September 2017. The current market capitalization is fixed at HK$65.877 billion.

At present, Mengniu has entered the "high flying" moment, although it has run fast enough over the years, it has never been able to surpass Yili, which is Lu Minfang's regret and a huge challenge for the new president Gao Fei.

Judging from the data, 2023 is the year that Mengniu's revenue is closest to the target of 100 billion yuan, but its earning power is far less than that of Yili. Mengniu's net profit margin on sales in the past year was only 4.93%, down 0.65 percentage points year-on-year. In the first three quarters of 2023, Yili made a net profit of 9.37 billion yuan, with a net profit margin of 9.65%, and the gap between the two is very obvious.

"Mengniu's net profit in 2023 is 853 million yuan lower than Yili's net profit in 2016. Some investors openly asked, "How did Mengniu catch up with Yili in the past seven years?"

If we want to continue the battle of "double 100 billion", what strategy will Gao Fei adopt to bring Mengniu back on the track of growth? He must quickly find a new solution to growth.

Where is the "difference"?

Since the day Lu Minfang picked up the burden of Mengniu in 2016, he has been catching up with his old rival Yili, and in 2017, he set a goal of "double 100 billion", that is, "sales and market value will reach 100 billion yuan in 2020". By the end of 2020, the goal of "double 100 billion" has not been fully achieved, and Lu Minfang has put forward a more ambitious plan: to create a new Mengniu within 5 years.

During this period, Lu Minfang led the completion of a number of major strategic investments such as Modern Dairy, China Shengmu, and Miaokelando, and at the same time sold Junlebao assets and launched the "Daily Xianyu" brand. These mergers and acquisitions not only won a certain opportunity in the competition for milk sources in the dairy industry, but also realized Mengniu's layout in the cheese and fresh milk business.

However, the gap is still widening, and by 2022, the difference in revenue scale between Mengniu and Yili has widened to 30.5 billion yuan. In the first three quarters of 2023, Yili's revenue was 97.404 billion yuan, only 1.2 billion yuan short of Mengniu's annual income. Yili's net profit is as much as double that of Mengniu, and the market value has also widened, and Mengniu is currently less than 40% of Yili's.

Where is Mengniu missing?

According to the 2023 financial report, Mengniu Dairy's liquid milk products achieved revenue of 82.07 billion yuan, a year-on-year increase of 4.9%, accounting for 83.2% of revenue, ice cream products achieved revenue of 6.03 billion yuan, a year-on-year increase of 6.6%, accounting for 6.1% of revenue, milk powder business achieved revenue of 3.8 billion yuan, a year-on-year decrease of 1.6%, accounting for 3.9% of revenue, and cheese business achieved revenue of 4.36 billion yuan, a year-on-year increase of 230%, accounting for 4.4% of revenue.

Xueqiu user "Xiao Xie Value Investment" believes that Mengniu's two major strengths, fresh milk and cheese, are unprofitable businesses. Yili's net profit after tax is only 3 billion yuan higher than that of Mengniu, mainly because of Yili's strong channel bargaining power and brand power, and its product structure is balanced. Mengniu mainly relies on 30 billion Telunsu, which is somewhat "biased".

Mengniu was thrown away by Yili, and another major problem was in the milk powder sector. In 2022, Yili's revenue in the milk powder and dairy products business segment will be 26.26 billion yuan, nearly 18 billion yuan more than the combined revenue of Mengniu's milk powder business and cheese business in the same period, accounting for two-thirds of the gap between the two.

This shortcoming began in 2019, when Mengniu sold its 51% stake in Junlebao at a low price of 4.011 billion yuan. Junle Bao is a high-quality asset of Mengniu, which has raised its revenue from one billion yuan to 10 billion yuan, and once became an important support for Mengniu's milk powder business and low-temperature yogurt business segments.

Song Liang, a dairy analyst, said that Junlebao's departure had a great impact on Mengniu, and it would be difficult to make up for this gap in three or four years. Mengniu has been adjusting its product structure in recent years, and emerging businesses such as milk powder and cheese are still in the growth stage, and it will take some time to become the "pillar" of Mengniu's revenue.

Although it tried to "fill the hole" through acquisitions and spent 7.1 billion yuan at a premium to acquire Bellamy's, an Australian milk powder manufacturer, this did not help Mengniu return to its former peak. In addition, Yashili, which Mengniu acquired in 2013, was also delisted and privatized by Mengniu in 2023 due to its long-term weak performance.

The weakness of the milk powder business has dragged down the development of Mengniu as a whole, especially its profitability.

Although the gap with Yili is getting bigger and bigger, Mengniu has never given up the fight for the first place. However, the continuous mergers and acquisitions of 10 billion yuan have also caused Mengniu's asset-liability ratio to soar to 56.04%, and its goodwill is as high as 8.952 billion yuan, but the second growth curve it is looking for has still not appeared.

Lu Minfang believes that behind the changes in the dairy industry, the dairy industry has entered a relatively stable stage, and the development of the industry has entered the second half, but due to the fact that the industrial structure of the dairy industry is too simple, the industry has not "reacted" for the time being, and has fallen into a temporary slowdown.

How does Goofy take the call?

Lu Min stepped down this time, and the pressure of "double 100 billion" was given to the new president Gao Fei.

According to the data, Gao Fei joined the company at the beginning of Mengniu's establishment in 1999 and is an "old Mengniu man", with an employee number of 77, who was evaluated as "participating in the whole process of Mengniu's rapid development and leading the industry". Before taking over as president, Gao Fei was the senior vice president and head of the room temperature business department of Mengniu Group, leading the development and development of Mengniu's sales system.

Under his leadership, Mengniu liquid milk has achieved double-digit growth for five consecutive years, and its single-handed brand "Telunsu" has successfully entered the high-end dairy market, with annual sales exceeding 30 billion yuan. In addition, Gao Fei also commanded the Mengniu marketing campaign for the World Cup in Russia and the World Cup in Qatar. In the process of Mengniu's digital and intelligent transformation, Ningxia Digital Intelligence Super Factory was successfully implemented under the leadership of Gao Fei.

At the results conference, Lu Minfang, who had just changed his status to vice chairman, said that the management adjustment would be conducive to Mengniu's overall development and the stability of its strategy and operations. Gao Fei, the new president, also said: "Whoever is in the position of president today, the first thing that comes to mind is that Mengniu's strategy remains unchanged. ”

In the domestic dairy market, where competition is in full swing, it is not easy to break through the "double 100 billion" goal, not only Yili, Guangming and other old giants are "eyeing" the throne of the dairy industry boss, but also many emerging brands are emerging, these brands are competing for market share through continuous innovation and marketing methods.

"Competition is the norm, the industry has entered a stage of high-quality development after so many years of rapid development, and any enterprise will return to rationality to think about competition and price war. In the face of analysts' questions about whether Mengniu will fight more fiercely with its friends tactically, Gao Fei said that strategically, we must return to management, build a good Mengniu brand, adjust the product structure, and stabilize the overall price. Structurally, Mengniu will continue to focus on improving profit margins and cash flow, as well as shareholder returns. "Don't worry too much, everybody. ”

While Gao Fei admitted that the dairy industry is currently facing some challenges, he also gave "reassurance" and promised that Mengniu's strategy will not change. "This is the strategy that Mr. Lu led the management team to do in the past", which refers to the "3-2-1" methodology, in which "3" refers to three focuses - focusing on R&D and innovation, brand building and digital and intelligent transformation, "2" refers to two "acceleration" - accelerating channel optimization and new business development, and "1" refers to a center, and all work should dedicate value to consumers and partners.

The goal of "double 100 billion" is to be fulfilled, can Gao Fei lead Mengniu to break the "Gao Fei" after taking over the baton?

Song Liang believes that under the current circumstances, Gaofei must first continue to consolidate its main business and ensure the stable development of white milk, secondly, it must accelerate the expansion of new business areas, such as cheese and milk powder, to speed up the breakthrough, thirdly, it is necessary to accelerate and deepen the international development and accelerate the expansion of overseas markets, and finally, it is necessary to continue to promote the construction of Mengniu's digital and green industrial system.

"Starting from 2024, Mengniu is laying out a new round of industrial upgrading, and the dairy industry still has huge growth potential in some subdivisions, such as low sugar and low fat, zero additives, formula optimization, nutritional fortification, etc., and will also become a new track for dairy enterprises to innovate, upgrade and compete in the future. Lu Minfang proposed that in the next step, Mengniu will continue to promote the upgrading of high-end deliciousness on the one hand, and on the other hand, Mengniu will pay more attention to the expansion of personalized and functional nutrition.

So, will creating a "new Mengniu" still be the goal of Gao Fei? How should the No. 77 "old Mengniu man" answer the questionnaire?