Some time ago, I saw a media report:
Survive and hold on! Tianrun Dairy reduced production capacity and passed through the cycle
Just looking at this title, things are very reasonable, after all, the price of raw milk continues to decline, the industry demand is not strong, and it is reasonable for enterprises to reduce production capacity at this time.
But what makes me strange is that it is clear that the media reports and advertises that the company is reducing production capacity; But on the other hand, the company is raising funds to expand production capacity.
On September 6, Tianrun Dairy's company announcement once again disclosed the fundraising documents:
Letter of sponsorship for the issuance of convertible bonds by China Securities Construction Investment to Tianrun Dairy.
On the one hand, the company's announcement said:
It is expected to raise no more than 990 million yuan, of which 712.3 million yuan will be used for the construction of dairy processing projects with an annual output of 200,000 tons.
On the one hand, in the media reports:
The chairman of the company said that he was trying to survive by breaking his arm to reduce production capacity.
That being the case, is it necessary for investors to question:
(1) Is it contrary to common sense to raise funds to expand production capacity while reducing production capacity?
(2) Is it reasonable for the company to raise and build an annual production capacity of 200,000 tons?
(3) In addition to industry factors, is the reduction of production capacity related to the company's poor management?
(4) If the company's management level is still insufficient, how to ensure the production efficiency of the upcoming expansion of 200,000 tons of production capacity?
1. Analysis of the performance loss of Tianrun Dairy
Compared with the interim report data of previous years, the net profit of Tianrun Dairy in the first half of this year showed a loss for the first time, with a loss of 42 million yuan. The reasons for the loss given by the company are:
The first is to increase the disposal of low-yielding dairy cows and bulls.
The second is to make provision for impairment of inventory, impairment of biological assets and bad debts.
The third is to merge Xinnong Dairy to increase losses.
Looking at it this way, Tianrun Dairy's loss seems to be a strategic loss.
After disposing of backward production capacity, the company was able to travel lightly and lay the foundation for the improvement of performance.
But we still need to continue to analyze the actual situation.
Personally, I believe that the main reason for the loss of Tianrun Dairy is not the impairment or merger of Xinnong, but the limited sales growth of the original product series and the failure to maintain the growth of income.
1. Will the disposal of low-yielding cows and bulls affect net profit?
Tianrun Dairy's interim report shows that the company's losses from the disposal of cattle by subsidiaries are included in non-recurring profits and losses;
However, as we all know, non-operating regular profit and loss does not affect net profit, it is an item after net profit, and it affects the deduction of non-net profit.
Therefore, the first reason for the company's mention of losses is to increase the disposal of low-yielding dairy cows and bulls, and I don't know how to understand this.
2. The revenue of Tianrun's main sales company declined
The merged new farmers have an impact on Tianrun's overall performance, but it is not the main reason for the loss.
We look at the performance of Tianrun Dairy Holding Company in the first half of this year:
Xinnong Dairy's operating income was 182 million yuan, and the net profit loss was 46.1206 million yuan;
Tianrun Dairy Sales Company has an operating income of 1.232 billion yuan and a net profit loss of 241.491 billion yuan.
If we don't look at the notes in the annual report, we won't know this information, that is, the main company of Tianrun Dairy, Tianrun Dairy Sales Company, its net profit is a loss.
Compare the performance of Tianrun Sales Company in previous years:
In 2024, the subsidiary's operating income will decline for the first time, and it will be the first time that there will be a net profit loss.
Therefore, the loss of Xinnong cannot hide the fact that the performance of the company's original main sales company has declined, and besides, the merger of Xinnong has made Tianrun Dairy's financial report income look better.
The consolidated statement included the income of Xinnong, but the income of the consolidated statement only increased by 54 million yuan.
3. The asset impairment loss is less than 60 million
About the reason for the loss:
The first is to increase the disposal of low-yielding dairy cows and bulls.
The second is to make provision for impairment of inventory, impairment of biological assets and bad debts.
So, how much of the company's impairment provision has been made this year?
From the perspective of the asset impairment loss transferred to the income statement, it is only 57 million, and the credit impairment loss is only 1 million, which is lower than the 3 million in the same period last year.
Therefore, the reason for the net profit loss given by Tianrun Dairy in the interim report is actually to avoid the fact that the company's revenue growth is weak.
The company's total costs increased by 9.79%, but revenue increased by only 3.89%.
Sluggish revenue growth and inability to cover the costs of greater growth are the main reasons for the net profit loss of Tianrun Dairy.
In the dairy environment of that year, Tianrun Dairy, which had weak growth, once again raised funds to build a dairy processing project with an annual output of 200,000 tons, is it reasonable?
2. How feasible is it for Tianrun Dairy to expand its production capacity?
There are at least two prerequisites for expanding production capacity:
First, the demand of the industry is growing, and the new production capacity has the possibility of being sold;
Second, the demand of the industry is insufficient, but the company's products are competitive, and existing consumers will buy its goods.
So, what kind of situation does Tianrun Dairy belong to?
1. Income in Xinjiang has decreased, and the growth rate of income outside Xinjiang has slowed down
Here we have to mention the ingenious application of information asymmetry.
According to the report, in the first half of this year, the company's sales revenue outside Xinjiang increased to 48.97%, which seems to be a great progress;
However, from the breakdown of revenue composition, the company's revenue in Xinjiang has decreased by about 43 million this year, while the revenue outside Xinjiang has only increased by less than 80 million, compared with about 1 billion in the same period last year.
Just looking at the proportion of income outside Xinjiang is not only useless, but also misleading us; If the income in Xinjiang increases by 40 million, the proportion will not be this number.
Moreover, the company's revenue in Xinjiang decreased by 43 million, which is not a good thing.
2. Tianrun Dairy, can the products be differentiated?
The quality of dairy products is largely determined by the quality of the raw milk.
After the acquisition of Xinnong Dairy in 2023, the total number of cattle has increased rapidly to about 65,000 heads, and the milk supply rate has increased from the original 64% to more than 90%.
Tianrun's acquisition of Xinnong may be eyeing Xinnong's cattle.
Just as there were dairy companies that went to buy Huishan at that time, they only wanted Huishan's cows, so they didn't negotiate.
As shown in the figure below:
Tianrun Dairy's fundraising this time is to use the milk source of Xinjiang to differentiate and sell Tianrun's room temperature dairy products outside Xinjiang.
Here's what needs to be inserted:
The Jiali milk under Tianrun sold in Jinan supermarkets is not the milk source of Xinjiang, but the local milk source of Shandong.
However, whether in terms of price or product, Tianrun has no obvious competitiveness.
First, there is no advantage in price.
The shipping cost of milk produced in Xinjiang will be added to the price of the product, and the price of Tianrun milk on the market is more expensive than other brands.
Second, there is no clear advantage in nutritional value.
Local fresh milk is a substitute for Tianrun room temperature milk, which has higher nutritional value and is not bad in taste.
In fact, the room temperature milk of local and national dairy companies is also a substitute for Tianrun room temperature milk; Xinjiang milk sources alone can't make differentiation, gardens, Xiyu spring, etc., are all Xinjiang milk sources.
Third, there is no advantage in offline channels.
The sales channels of national dairy enterprises are deeper and more intensive than those of Tianrun.
At present, offline is still an important sales channel for dairy products, but Tianrun Dairy, which is far away in Xinjiang, still has a long way to go to build a dense distribution network in the vast inland provinces.
Moreover, the income of Tianrun Dairy in Xinjiang is still declining.
Therefore, no matter from which point of view, Tianrun Dairy raises funds for dairy processing with an annual output of 200,000 tons, and its rationality needs to be further analyzed.
Of course, it is also a way for enterprises to get the money raised first and use the money on the account to go through the cycle.