Gross Profit Rate As High As 70% Can The High Growth Of Feida Dairy Industry Continue?

Recently, flying crane submitted the first answer after the listing of Hong Kong stocks.

The company's revenue reached 13 billion 722 million yuan, an increase of 32% over the same period last year, and net profit reached 3 billion 935 million yuan, an increase of 75.5% over the same period last year. Cash flow is in good condition. Not only that, the gross profit margin of the company is also on the bright side, up to 70%, up 2.5 percentage points from last year. This data can be compared with the liquor industry, which is famous for its high margin. The board recommended a dividend of HK $0.19 per share and a dividend yield of 40%. The expected dividend yield is no less than 30% in the future.

In addition, facing the impact of the epidemic on the economy, the flying crane industry is going against the trend. The company expects sales to increase by 30% in the first quarter of 2020. The success of flying crane milk powder has suddenly opened up the gap between China and Beingmate, Ausnutria and other domestic dairy enterprises. For Mengniu Group, a large dairy enterprise listed on the Hong Kong stock market, Feida also has certain competitiveness in the capital market.

Mengniu recently released the annual report shows that the company's revenue in 2019 amounted to 79 billion yuan, up 14.45% over the same period last year, net profit grew 34.9% compared to 4 billion 105 million yuan. From the volume of revenue, Mengniu is more than 5 times of flying crane, but there is not much difference in net profit. In addition, since entering March, the market competition between flying crane and Mengniu has been fierce.

As of April 2nd, the latest market value of flying crane was HK $123 billion 300 million and Mengniu's latest market value was HK $106 billion 100 million. The gap between nearly 20 billion Hong Kong dollars and the status of flying crane gradually stabilized. In the hearts of the public, the flying crane, which is always in the second echelon, is playing a beautiful battle.

Flying crane's financial data indeed boosted the confidence of the domestic infant formula industry. What is behind this support for the company's high growth? Is this high growth sustainable?

　　 This scenery is good, but there are hidden dangers behind it.

Referring to domestic milk powder, Sanlu's "tainted milk powder" incident in 2008 is a kind of cannon that people have never been able to get through.

At that time, the incident attracted the attention of all countries. After the AQSIQ conducted a special inspection of melamine in 175 infant milk powder manufacturers, Feida dairy was one of the few dairy companies that did not detect melamine. At that time, Feida dairy was also a NASDAQ listed company, the first China's first dairy company in the United States. After the news spread to the United States, flying crane opened up and then went against the trend. In 2009, the company transferred to the main board of the NYSE, under the influence of multiple factors. In 2013, Feida dairy completed privatization and delisting.

After returning to the market, the flying crane dairy industry just caught up with the state's support for the domestic milk powder industry. After the Sanlu milk powder incident, the domestic milk powder has no credit in the hearts of the people for a period of time, and is also listed in the blacklist of dairy products imports by many countries.

This has brought heavy losses to China's dairy industry, and has also become the watershed of China's dairy export trade. In order to revive the domestic milk powder, the government began to exert its efforts, such as the plan to improve the quality level of milk powder and boost consumer confidence in 2013.

Although the environment is good, the key to success is to rely on the enterprise itself.

Judging from the current market of infant formula in China, the Chinese market is one of the fastest growing infant formula market in the world. With the continuous development of urbanization and the increase in the number of working mothers, more and more Chinese mothers have begun to accept the convenience and nutritional value of infant formula milk products as their infant breast milk supplements.

Although the decline in birth rate may lead to a slowdown in the retail price of infant formula market in China. However, with the increase of disposable income, the demand for high-end infant formula will become the driving force of the infant formula industry, and the infant formula market will continue to grow. The rapid growth of Feida dairy industry's revenue comes from the super high-end flying sails and ultra high-end organic products. High-end products also enhance the overall gross profit margin of the company.

How can we cater to the constant "harsh and severe" demand of consumers? The source of milk is the most important. Insiders said that the supply of raw milk in China is in short supply. In order to ensure the supply of milk, there are mainly two ways to ensure the supply of raw milk.

In 2007, Feida dairy began to build milk sources. The company chose to invest nearly 2 billion yuan in the Qigihar area at 47 degrees north latitude, and set up pasture and forage base. This latitude is abundant in sunshine and suitable for rainfall, which is also an important factor to ensure the quality of milk sources. At the same latitude, there are many high quality animal husbandry areas, such as Hokkaido, Japan, Wisconsin and so on. Cows in the ranch also live in constant temperature cattle houses, as well as machine massages. This ensures the quality of herbage and cow from the source, controllable and traceable.

Erie and Mengniu have worked hard in this respect. Mengniu's infant milk powder brands mainly include five brands, such as Rui nurn, Dumex, Ashley, and so on. Mengniu's overseas milk source has extended to Denmark, Australia, New Zealand and other places. It is mainly distributed in northwest, North China and Northeast China. Yili's infant milk powder brand is a gold collar, which is also divided into Zhen Bao series, Jing Bao series and so on. Its milk source comes from New Zealand.

Not only that, Mengniu and Yili also continue to strengthen their own "milk power" through external mergers and acquisitions. China's three major raw milk suppliers, modern animal husbandry, China's holy animal husbandry and Hui Shan dairy industry, are strongly related to Mengniu and Yili.

Mengniu held modern animal husbandry in 2017. At the end of 2018, it gained 51% of China's sacred animal husbandry. Last year, it was reported that Erie or 1 billion 500 million of the investment will be funded by the Hui Shan dairy industry. With the development of M & a business, the proportion of milk resources controlled by Yili and Mengniu has been increasing. In view of this, Mengniu and Erie are better at the source layout.

The market is broad and the quality is assured, but the smell of wine is also afraid of the alley. Therefore, channel capability is another important factor for its sudden emergence. The marketing system of flying crane is worth mentioning.

Flying crane's brand positioning is "more suitable for China's baby physique". This is actually a good hit for consumers. Generally speaking, mothers will provide children with better growth conditions within the scope of economic conditions. If there is not much difference in price, why not buy imported brands and buy domestic products? One side of the soil and water conservation team, the flying crane milk powder in the composition design and other aspects will be more suitable for Chinese babies, other imported brands may prefer their own national conditions. It has chosen a clever breakthrough.

Around this brand positioning, the company adopts online and offline marketing methods to expand the reputation of flying crane brand. Offline, the company mainly adopts seminars, including Carnival and roadshow, to establish contacts with consumers. Leng Youbin, chairman of flying crane, has a deep understanding of offline channels. He believes that offline channels not only have positional advantages, but also have the advantage of emotional communication.

On line business, the company focuses on improving interaction with consumers and focusing on media coverage. In addition, the company hired Zhang Ziyi as the spokesman of the image to expand the reputation of flying crane. In 2019, flying crane's sales and distribution expenses rose 5.1 percentage points to 3 billion 848 million yuan, accounting for 27.95% of revenue.

In terms of operation and management, Leng Youbin, chairman of the company, said that 80% of the management level above the middle level of Feida dairy industry was developed by itself, with high loyalty and strong execution ability. Not only training management, Feida dairy is also training suppliers and distributors. This has a positive effect on the high-speed and effective operation of the company.

　　 Future growth point and moat

However, the single revenue structure supported by infant milk powder makes the Feida dairy industry face no small challenge.

How can we achieve sustainable development in the future if we rely on a product like this?

Although the "tainted milk powder" incident has been used for a long time, the credibility of the domestic milk powder brand has not yet fully recovered, and the public psychology will be somewhat taken into account. Not to mention that a large number of powerful dairy enterprises in China are involved in the milk powder industry. Under the siege of various channels such as cross-border electricity suppliers and purchasing agents, Chinese mothers who are not short of money are more likely to favor some of the big international brands of milk powder, such as Wyeth, Abbott, Mead Johnson and so on.

Feida dairy industry seems to have noticed this, although it has action, it is not big at present. In early 2018, the retail health care business of Vitamin World was acquired through Vitamin World USA. Vitamin World USA is engaged in retail of vitamins, minerals, herbs and other nutritional supplements. Feida dairy mainly sells these products through e-commerce platform, such as Vitamin World USA website, Amazon, Tmall international and Jingdong. At the end of 2019, the nutritional supplements brought the company a profit of 578 million yuan, accounting for 4.2%.

Prospectus shows that in 2017 -2018 Feida dairy R & D costs of 15 million yuan and 109 million yuan, accounting for only 1% of revenue. In contrast, the research and development fees of Mengniu in 2017 and 2018 were 133 million yuan and 159 million yuan respectively, accounting for 2.21% and 2.30% of the revenue respectively, and the research and development expenses of Erie in 2017 -2018 were 210 million yuan and 427 million yuan, accounting for 3.09% and 5.37% respectively. Erie and Mengniu R & D investment is significantly higher than Feida dairy industry, and the three of them are a big step.

In view of this, Feida dairy industry needs more consideration in product quality and industrial layout.