private placement, how to judge Yili’s investment logic?
The reason is that the cold of the fixed value-added market is related to the strengthening of regulatory audit, and the overall downturn of the market makes it difficult for the fixed value-added shares to realize their benefits after the lifting of the ban, which makes it more difficult for listed companies to raise funds.
In February 2020, China Securities Regulatory Commission (CSRC) issued new rules on refinancing, aiming to further activate the market, and the A-share fixed increase market recovered from the trough. In the first four months of 2021, about 175 A-share listed companies have issued plans for fixed increase, and the total amount of funds raised is expected to be about 313.9 billion yuan.
On June 4, Yili also issued the “2021 non-public Development Bank A-share stock plan” announcement, which proposed to raise no more than 13 billion yuan. According to the market value of Yili shares of 240.750 billion at the close of June 4, the proportion of this fund-raising in the total market value is about 5.4%.
Relevant announcements show that the raised funds will be mainly used for the construction of liquid milk production base, intelligent manufacturing of infant formula, Changbai Mountain natural mineral water, digital transformation and information upgrading projects.
So, what will be the impact of the private placement of Yili shares? Is it worth continuing to invest?
Private placement is a kind of financing behavior, which refers to the listed company’s non-public offering of shares to a few qualified specific investors. It is required that the number of issuers should not exceed 35, the issue price should not be less than 80% of the market price, and the shares should not be transferred within 6 months (18 months for major shareholders).
Simple understanding, private placement is to exchange shares for money. Listed companies with fixed increase can strengthen their control over the company, or supplement funds for merger and acquisition, production and R & D, and supplement cash flow.
According to the issue object and the final issue price, private placement can be divided into fixed price increase and fixed price increase. The private placement of Yili shares is the latter.
According to the latest version of the “detailed rules for the implementation of non-public development of stocks by listed companies”, there are no less than 20 securities investment fund management companies among the institutional investors with fixed price increase; No less than 10 securities companies; There are at least five insurance institutions. In addition, under the bidding of institutional investors, the final price of fixed increase is often higher than the reserve price.
The purpose of raised funds is an important clue to observe the nature of private placement of listed companies.
Yili’s last private placement can be traced back to eight years ago. In 2013, Yili completed a private placement of about 5 billion yuan, which was used to acquire 37.00% equity of China Shengmu, invest in New Zealand dairy production line construction projects, domestic high value-added dairy products such as liquid milk, yogurt, cold drinks, milk powder improvement projects, operation center investment / R & D center and cloud business platform projects.
From the fixed increase results, this fixed increase has stabilized Yili’s leading position in the domestic dairy market, and basically maintained the annual revenue growth rate of the enterprise at more than 10%. Among them, the acquisition of Shengmu equity makes Yili further strengthen the upstream self owned milk supply, and its additional funds are used to expand dairy production capacity and increase the proportion of high profit products. According to the 2020 annual report, Yili’s liquid milk revenue is 76.1 billion yuan, accounting for 78.86% of the total revenue, and the gross profit rate is about 34.05%. Milk powder, dairy products and cold drink products account for 13.35% and 6.38% of the total revenue, respectively, and the gross profit rate is more than 40%.
And the Yili Group after 8 years of private placement, capacity expansion is still one of the goals.
From the distribution ratio of the raised funds, investors can roughly see the development direction of Yili Group. That is to say, the main energy is to expand production capacity, increase the proportion of high-end milk powder, high-end liquid milk, dairy products and other products with high gross profit margin, and try to expand to the mineral water and health drink market behind. The remaining funds are used for enterprise digitization, information transformation, and supplementary cash flow.
Compared with the last large-scale SEO, this SEO is still focused on deepening the moat, laying out the global supply, production and sales capacity, and moving forward to high value-added categories.
At the leadership summit of Yili Group at the end of 2020, Pan Gang, chairman of Yili Group, put forward Yili’s medium and long-term strategic goal – to advance into the “top three in global dairy industry” in 2025 and steadily move towards the “top one in global dairy industry” in 2030.
To achieve the strategic goal, we must grasp the market demand. The change of consumers’ preference is promoting the transformation of related enterprises to high value-added categories, such as high-end liquid milk, high-end normal temperature yogurt, infant milk powder, health drinks, etc.
Take Yili’s core business liquid milk market as an example. Frost Sullivan data shows that the retail sales value of domestic high-end liquid milk will increase from 75.9 billion yuan in 2015 to 150.3 billion yuan in 2020, and it is expected to increase to 302.7 billion yuan by 2025.
Qiu Xiangmin, Secretary of the board of directors of Yili shares, said in an interview that the new production capacity of the raised investment project will be more used for the production of high-end liquid milk, infant formula and other key categories. These are the projects with good profits, fast growth and capacity gap. After the investment, the company’s profitability will be greatly improved.
Another important signal is that Yili is accelerating its development to the natural mineral water market.
According to the financial data of Nongfu Shanquan, a domestic drinking water faucet, the gross profit margin of its packaged drinking water is more than 60% thanks to its strong channel and product positioning. For Yili, its advantageous distribution channels and inventory turnover rate will make it easier for the company to enter the drinking water market. If it is successful in product positioning, drinking water is expected to open a new market for Yili. Yili health drink business actually set foot in the field of mineral water in 2019. Relying on the world’s gold water source belt in ALSHAN, Yike active spring, a volcanic low-temperature active spring, was launched. The Changbai Mountain natural mineral water selected for this project is also the world’s rare high-grade mineral water confirmed by the world’s water authority, which is operating step by step in high-end mineral water sources, It is obviously a strategic move of Yili Jiama mineral water to try to create a new performance growth point.
For investors, Yili’s private placement means subtle changes in investment logic.
In the past, Yili’s main investment logic was the growth of core liquid milk products, cold drinks, milk powder and other categories; After the fixed increase, in addition to the traditional advantageous categories, investors should also pay attention to the growth of Yili’s new business, including high-end milk powder, health drinks, etc., as well as the digital transformation process of the whole group. This will determine Yili’s attitude in the market competition in the next decade.
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