Dairy oligarchy - Mengniu Dairy (02319) is experiencing investors "voting with their feet".
The management "changed blood", and the stock price plummeted
Zhitong Financial APP noticed that on March 27, Mengniu's share price shook and fell by more than 10% intraday. Subsequently, Mengniu's share price was in a volatile downward trend, falling to HK$15.32 intraday on April 16, the largest decline of 27% this year, and the largest decline of more than 70% from the historical high of HK$52.63.
After many rounds of decline, Mengniu has a current market capitalization of less than HK$61 billion, a price-to-earnings ratio (TTM) of less than 12 times, and a price-to-book ratio of less than 1.3 times, but investors still choose to "flee", a direct factor is that Mengniu has made the most important personnel changes in the past 8 years.
On the evening of March 26, Mengniu announced that from March 26, 2024, Lu Minfang stepped down as the company's president and was appointed as the vice chairman of the board of directors and continued to serve as the company's executive director. Gao Fei, former senior vice president and head of the room temperature business department of Mengniu, was appointed as the president and executive director of the company. Zhang Ping resigned as an executive director of the Company and continued to serve as the Chief Financial Officer. On March 27, at the Mengniu performance conference, Lu Minfang and Gao Fei shook hands cordially, showing the capital market that the "scepter" was successfully handed over. However, Mengniu's decision left investors with "mixed tastes".
2016 was a difficult year for Mengniu in its development history. Externally, the company has been hit head-on by major competitors such as Yili in the competition. In 2016, Yili achieved revenue of 60.61 billion yuan and net profit attributable to the parent company of 5.662 billion yuan. Internally, Mengniu's revenue in 2016 was 53.779 billion yuan, and the net profit loss attributable to the parent company was 751 million yuan (RMB, the same below), and the company's net profit attributable to the parent company in 2015 was 2.367 billion yuan.
In 2016, Lu Min was appointed president of Mengniu, and then launched a package of reform measures. In 2017, Mengniu's revenue exceeded the 60 billion mark for the first time, a year-on-year increase of 11.86%, and the net profit attributable to the parent company reached 2.048 billion yuan. Since then, Mengniu's revenue has maintained steady growth every year except for 2020. To a certain extent, the significance of Lu Min to Mengniu is equivalent to that of Kazuo Inamori to JAL.
It is a pity that for Lu Minfang, who advocates wolf culture and has "ambitions" for Mengniu's career, it is difficult to say that he will retire from the position of president at this time. In 2017, Lu Minfang set the first three-year goal during his tenure: Mengniu will achieve the "double 100 billion" goal of revenue and market value of 100 billion yuan in three years. At the end of 2020, Lu Minfang announced Mengniu's next five-year plan, that is, to "create a new Mengniu" in five years, and by 2025, revenue and profits will double compared with 2020. This means that in 2025, Mengniu's revenue will exceed 150 billion yuan, and its net profit will exceed 7 billion yuan.
The question now is, can Mengniu, the "wolf of the steppe", successfully complete the unfinished business that Lu Min put as president?
The growth rate of the dairy industry has slowed
Looking back at Mengniu's performance data in 2023, the company achieved revenue of 98.62 billion yuan, a year-on-year increase of 6.51%, and net profit attributable to the parent company of 4.809 billion yuan, a year-on-year decrease of 9.31%.
The annual revenue is 98.6 billion, which is enough to make more than 90% of the company envious, but it is quite "embarrassing" to put on Mengniu, because this figure should have been completed three years ago. If Mengniu's revenue is to exceed the 150 billion yuan mark in 2025, it needs to grow at a compound annual growth rate of more than 23% in 2024 and 2025, and the last time the company's annual revenue growth rate exceeded 20% was in 2013.
Looking at the dairy market as a whole, revenue growth of more than 10% is already "hard to find". Zhitong Financial APP combed the performance of major listed dairy companies in 2023 and found that whether it is industry giants such as Yili Co., Ltd. and Bright Dairy, or enterprises focusing on the upstream of the industry such as Modern Dairy and Youran Dairy, the revenue growth rate has not exceeded 10%.
As one of the few companies with revenue growth of more than 10%, Tianrun Dairy's net profit attributable to the parent company declined significantly due to the rapid growth of sales expenses and other expenses during the period. Mengniu's net profit decline in 2023 is partly due to sales and distribution expenses reaching 25.192 billion yuan, with a year-on-year growth rate of 12.73%.
Mengniu's lavish sales expenses have had a limited impact on revenue, largely due to the slowdown in consumer demand in the dairy market. GF Securities cited Nielsen data in the research report, and in 2021, 2022, and 2023, the omni-channel revenue of dairy products will increase by 7.90%, 6.50%, and 2.40% year-on-year, respectively. From the perspective of the rhythm of the whole year, the demand for liquid milk in 2023 will show a trend of high before and then low.
In terms of liquid milk consumption, on the one hand, the recovery of consumption power has been weak since the beginning of 2023, and residents' willingness to consume is insufficient. Consumers pay more attention to the nutritional and health attributes of dairy products when choosing them, and the demand for liquid milk products with stronger optional attributes such as yogurt and milk drinks is reduced.
On the other hand, the customer flow of large supermarkets and stores, which are the main channels of liquid milk, has declined, and the single-point sales force has been under pressure, resulting in a decline in the penetration rate of liquid milk channels.
In this context, some large banks have relatively flat expectations for Mengniu's performance growth in the next two to three years. For example, Da Mo issued a research report saying that it gave Mengniu an "outperform" rating and lowered the target price by 13.3% from HK$30 to HK$26. Da Mo said it lowered its earnings per share forecasts for Mengniu Dairy by 8%-9% in 2024 and 2025 because tepid demand is likely to continue in 2024 and it will take time for new products to drive growth, so sales forecasts for 2024 and 2025 were lowered by 2% and 3%, respectively.
Haitong International said in the research report that it maintained Mengniu's "outperform" rating and lowered its target price from HK$41.5 to HK$29.8. Haitong International expects Mengniu's operating income from 2024 to 2026 to be 101.49 billion, 105.53 billion and 109.6 billion yuan, a year-on-year increase of 2.9%, 4% and 3.9%, and net profit of 5.42 billion, 6.22 billion yuan and 6.75 billion yuan, a year-on-year increase of 12.7%, 14.7% and 8.6%.
"Buy" a new Mengniu?
According to the compound growth rate of less than 5% of revenue, Mengniu will reach 150 billion annual revenue in the distant future. Mengniu also mentioned in the 2023 results announcement that in 2024, the group will firmly implement the strategy of "creating a new Mengniu". The difference is that Mengniu has not mentioned this as a five-year strategic goal.
Perhaps after a long period of practice, Mengniu found that the "wolf culture" and the "leopard speed" were incompatible, and finally chose not to race against time, but to be a friend of time. In any case, "creating a new Mengniu" is still a must-answer question for Mengniu, how to achieve it? One of the answers may be: endogenous growth is not enough, and external mergers and acquisitions are used to "make up".
When it comes to mergers and acquisitions, Mengniu is a veteran player. In 2010 and 2013, it successively acquired milk powder brands Junlebao and Yashili. In 2016 and 2019, Mengniu made a provision for goodwill impairment of 2.25 billion yuan and 2.3 billion yuan respectively for Yashili. In 2023, Yashili will be privatized and delisted by Mengniu, and the company's last financial report left in the Hong Kong stock market shows that it will achieve revenue of 3.738 billion yuan in 2022, a year-on-year decrease of 15.7%; The loss attributable to shareholders was 231 million yuan, an increase of 183.4% year-on-year.
Compared with Yashili, Junlebao may be the "uneasy" in the hearts of many Mengniu investors. From 2016 to 2019, benefiting from the rapid increase in the volume of Junlebao milk powder, Meng's milk powder business continued to improve and grew rapidly. In 2018, Junlebao reached a total of 13 billion yuan, of which the sales revenue of milk powder business exceeded 5 billion yuan. However, Mengniu chose to sell Junlebao's business in 2019, making the milk powder business, which had the opportunity to become a "long board", become a "short board" again. According to market news, in 2021, Junlebao's revenue will reach 20.1 billion yuan, equivalent to 23% of Mengniu's revenue that year.
In the same year that Junlebao was "let go", Mengniu acquired Bellamy's, an Australian organic infant formula manufacturer, with a big swing. Mengniu's purchase of Bellamy's was paid for 7.1 billion yuan, a 50% premium. In the past five years, Bellamy's financial report has left behind not only performance figures, but also the "principle of prudence".
Zhitong Financial APP noted that in 2021, due to the decline in the performance of Bellamy's cash-generating units, the directors of Mengniu decided to recognize a goodwill impairment loss of 621 million yuan directly related to Bellamy's cash-generating units, and in 2022, Bellamy's recognized a goodwill impairment of 742 million yuan for the same reason.
In addition to the milk powder business, Mengniu has also made efforts to diversify its business such as ice cream and cheese in recent years, and an important way to lay out the business is also through "buying, buying, buying". For example, in the ice cream market, Mengniu acquired Aixue, a Southeast Asian brand founded by founder Niu Gensheng, and in the cheese field, it has a controlling stake in A-share listed company Miaokelando.
Overall, Mengniu's ice cream, milk powder and cheese businesses contributed little to Mengniu's performance growth. In 2023, the above three businesses will achieve revenue of 6.026 billion yuan, 3.802 billion yuan, and 4.357 billion yuan respectively, accounting for only 14.4% of total revenue. Among them, the key brand of the cheese business, Miaokelando, will achieve revenue of 4.049 billion yuan in 2023, a year-on-year decrease of 16.16%, and a net profit attributable to the parent company of 63 million yuan, a year-on-year decrease of 53.9%.
Many people may recall the past, if Junlebao is still there, Mengniu's goal of "double 100 billion" may have been achieved, and the pace of "creating a new Mengniu" may also be more solid. But history has no ifs, the wheel of history will only roll forward, how Mengniu will be stable and far-reaching in the future, it depends on how the new president writes the answer.