In the eyes of the outside world, there seems to be a “hidden worry” for the flying crane milk powder, which has been gaining momentum in recent years. The company relies on a supplier named “original ecological animal husbandry” for a large number of milk sources. Just now, flying crane solved this potential problem through the power of capital.
This evening, the flying crane and the original ecological animal husbandry jointly announced that the flying crane plans to enter the original ecological animal husbandry industry to increase the upstream milk source layout, and the total cost of the acquisition is about HK $3 billion. In a circular to the snack generation, Feihe also described its significance as follows: comply with the industry trend and control the “high quality milk source”.
This transaction also means that the original ecological animal husbandry with an annual milk output of more than 340000 tons will become the “100% owned pasture” of flying crane.
“Risk factors”
Let’s take a look at the details of the deal.
According to the announcement made this evening by the two listed companies in Hong Kong, they intend to entrust CITIC Lyon to make a voluntary conditional cash offer to the original ecological animal husbandry company at a price of HK $0.63 per share. At the same time, they will exchange cash for cancellation of all outstanding options, involving an amount of about HK $3.071 billion.
(equity structure of original ecological animal husbandry before the acquisition)
How important is original animal husbandry to flying cranes? In its prospectus, the former is listed as a “risk factor” because it points out that it relies on a limited number of dairy producers as the main suppliers of fresh milk. Any shortage or interruption of supply of these suppliers may delay the production of the company’s products and reduce the sales volume.
Among them, the original ecological animal husbandry, which is also located in Northeast China, is the largest milk source supplier of flying crane. From 2016 to 2019, the total cost of fresh milk purchased by flying crane exceeded 80%, which was paid to the original ecological animal husbandry, with the proportion as high as 88.6% as of the middle of last year.
In other words, the original animal husbandry that has mastered the milk source seems to hold the “throat” of the flying crane. In order to protect their own supply chain security, flying crane and the original ecological animal husbandry signed an agreement to ensure that they can get the latter’s fresh milk supply first. The latest signing was last September, and the agreement only guarantees priority supply for the next three years.
“We cannot guarantee that our fresh milk suppliers will maintain their supply to us, or will not breach their contractual obligations to supply us with fresh milk, or that our supply agreement will not be suspended, terminated or otherwise expired without renewal.” In the prospectus, flying crane’s “warning” tone seems to be a little harsh.
It is because of this “blessing” with flying crane that the performance of original ecological animal husbandry is also rising. Last year, the milk supplier’s revenue was 1.39 billion yuan, a year-on-year increase of 26.37%, and a net profit of 223 million yuan, a year-on-year increase of 140.10%. In the first half of this year, the net profit was 124 million yuan, a year-on-year increase of 266.15%.
Milk source “enclosure”
In fact, before the acquisition, the domestic dairy giant’s “enclosure” is coming fiercely, which also makes Feihe, who has not “drunk” its upstream milk source supplier, see it in the eye.
According to the data, Mengniu increased its shareholding in modern animal husbandry in 2017 and became the largest shareholder of Shengmu in China in July 2020. In 2019, Yili acquired saikexing, a dairy enterprise upstream of the new third board, through its real-time controlled enterprise Youran animal husbandry; in August 2020, Yili announced that it would subscribe for 16.6% shares of Zhongdi dairy by 183 million yuan.
“After the successful offer, Feihe will become the controlling shareholder of the original ecological animal husbandry industry. While consolidating the stability of the upstream raw milk supply, Feihe will increase its control over the upstream industrial chain and reduce the impact of raw milk price rise.” This is what the flying crane said in the briefing today.
As of 2019, the original ecological animal husbandry has seven pastures in China, with milk production of more than 340000 tons. Six of them are located in Heilongjiang Province, close to the factory of flying crane.
“Congenital advantage”
However, it is interesting that if we have a deep understanding of the business models of both sides, we will find that the balance is not only tilted towards the original ecological animal husbandry: with the continuous growth of flying crane, the flying crane is actually holding the “throat” of the original ecological animal husbandry in turn. In the first half of this year, Feihe achieved an operating revenue of 8.707 billion yuan, a year-on-year increase of 47.8%, and a gross profit of 6.176 billion yuan, a year-on-year increase of 55.4%.
Since April this year, the stock price of the original ecological animal husbandry has been on the upward channel), or about 38.8% of its net asset value per share by the end of last year.
Xiaoshidai noted that at the mid-term Performance Analyst meeting this year, Feihe senior management was once asked how the company intends to deal with the hostile acquisition of the original ecological animal husbandry industry? In this regard, the high-level participants said that the development of the original ecological animal husbandry can not do without the flying crane’s policy on it. According to the above-mentioned senior officials, during 2014-2015, the price of domestic raw milk dropped sharply, and the price of milk was even as low as 3.2 yuan per kilogram, but the flying crane still paid 3.7 yuan to 3.8 yuan for the original ecological animal husbandry.
According to the data, the original ecological animal husbandry had recorded a loss of 556 million yuan in 2018.
“If we say that our upstream enterprises are gone, our downstream security is also gone, so we have been in a state of protecting them (original ecological animal husbandry) “If other people are going to give it a high price now, it will sell the milk to others, and it will have to consider it,” said the senior management of Feihe
According to the prospectus, the original pasture distribution map
“By the middle of this year, there will be more milk, right?” However, the two sides still maintain cooperation, so the basis of trust is relatively solid, the senior official said. In addition, he stressed that Feihe’s factory is built 10-20 kilometers away from the original ecological animal husbandry. If other downstream enterprises purchase it, they will have to pay higher freight. Therefore, the cooperation between Feihe and the original ecological animal husbandry has “inherent advantages”.
Later, the top management of Feihe further added that considering the weight of flying crane in Qiqihar and the policies it can win for animal husbandry, “competitors can’t buy it.”.
The original ecological animal husbandry will resume trading tomorrow and maintain its listing status on the main board of the Hong Kong stock exchange.
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