Image source: Visual China
Blue Whale News June 19 (Reporter Zhang Jinglun) Recently, Youran Animal Husbandry (09858.hk), the “first upstream dairy company”, issued an announcement on personnel changes. The announcement shows that Wu Xiang will resign as the company's non-executive director and chairman of the board of directors from June 14, 2024 due to other work needs.
Yang Huicheng took over as a non-executive director and was also appointed as a director of Inner Mongolia Youran Animal Husbandry Co., Ltd., a subsidiary of Youran Animal Husbandry. Yuan Jun, the current executive director and president, also serves as the chairman of the board of directors and was further appointed as a director of Inner Mongolia Youran Animal Husbandry Co., Ltd. and Chairman of Inner Mongolia Saikexing Breeding Biotechnology (Group) Co., Ltd. According to the
announcement, Yang Huicheng has more than 24 years of experience in the dairy industry. He joined Yili in August 1999 and has successively served as deputy director of bidding for the supply assurance department of Yili Group, general manager of the investment management department, and deputy general manager of the cold beverage division. Yuan Jun, the new chairman of the board of directors of
, is also an important veteran of Yili. Joined Yili in July 1998 and started his career in the Liquid Milk Division of Yili Group. He successively served as Production Director of the Production Management Department of the Cold Drinks Division of Yili Group, Deputy General Manager of the Raw Milk Division, and Deputy General Manager of the Liquid Milk Division. Products industry with more than 25 years of experience. Joined Youran Animal Husbandry in July 2022 as executive director and president.
Youran Animal Husbandry said: "With his rich management experience and knowledge and the support of other members of the board of directors, Yuan Jun can provide stable and continuous leadership for the group. In addition, having the same person hold the positions of chairman and president at the same time is conducive to ensuring The group's internal leadership is consistent and consistent, making the group's overall strategic planning more effective and efficient. "
It is worth mentioning that as a raw milk supplier to Yili, Youran Dairy does not seem to be worried about "life". But contrary to expectations, the development path of this "number one upstream dairy company" has not been smooth. Can
substitution solve the problem?
Youran Animal Husbandry was established in 1984. The company's business mainly provides raw milk and systematic solutions for ruminant animal breeding. Once a wholly-owned subsidiary of Yili, it separated its business from Yili in 2015 and was listed on the Hong Kong Stock Exchange in June 2021.
but did not realize that the launch would be the peak. Since then, Youran Animal Husbandry’s performance has taken a sharp turn.
From 2021 to 2023, Youran Animal Husbandry achieved revenue of 15.346 billion, 18.051 billion, and 18.694 billion respectively, with year-on-year changes of 30.26%, 17.62%, and 3.56% respectively. Net profits during the same period were 1.558 billion, 415 million, and -1.05 billion respectively, with year-on-year changes of 16.21%, -73.38%, and -353.15% respectively.
Among them, the net profit drop of -353.15% in 2023 can even be described as tragic. The reason is that the decline in gross profit margin of raw milk, which accounts for 69% of its total revenue, is the main reason for the decline in Youran Animal Husbandry's net profit. According to the financial report, the gross profit margin of the raw milk business dropped from 31.4% in 2022 to 28.6% in 2023.
Youran Animal Husbandry stated in its financial report that due to the impact of the macro environment, the dairy farming industry is facing severe challenges such as the decline in the sales price of raw milk, the decline in the market prices of beef cattle and grown cattle, and the price of bulk raw materials is still high, resulting in the fair value of the group's biological assets. Losses arising from changes in sales costs increased significantly and the gross profit margin of the Group's raw milk business declined.
In 2023, the periodic surplus of raw milk production has attracted attention. According to data from the National Bureau of Statistics, the annual raw milk production in 2023 will be 41.97 million tons, an increase of 6.7% over the previous year. Dairy consumption has recovered at a low level, and raw milk production is still in periodic surplus. Dairy processing companies are facing a shortage of raw milk. Due to the dual pressures of oversupply and destocking, the purchase price of raw milk continues to remain low.
Data from the Ministry of Agriculture and Rural Affairs show that in 2023, the average price of raw milk in my country's dairy-producing provinces will be RMB 3.84/kg, a decrease of approximately 7.7% from RMB 4.16/kg in 2022. According to Youran Animal Husbandry’s 2023 annual report, the company’s average unit price of raw milk dropped from 4.66 yuan/kg in 2022 to 4.38 yuan/kg, a year-on-year decrease of 6.0%.
Milk prices continue to fall, while feed costs such as corn, soybean meal, and imported alfalfa continue to rise. Data from the Ministry of Agriculture and Rural Affairs show that my country’s soybean meal and corn prices are still running at a high level, with the average price falling slightly compared with 2022.According to China Customs statistics cited in Youran Animal Husbandry’s 2023 annual report, the price of alfalfa hay imported into my country fell rapidly during the reporting period, but is still at a historically high level.
Image source: Visual China
Against the background of this industry, many ranches have to choose to "poll milk and kill cows" to relieve pressure, which is also reflected in Youran Dairy's financial report. Youran Animal Husbandry's loss from the fair value of the company's biological assets less changes in sales costs in 2023 will increase from 1.617 billion yuan in 2022 to 3.613 billion yuan, an increase of 123.44%.
However, looking at the industry, the net profits of many raw milk companies will show a downward trend in 2023. Modern Dairy, Australia Asia Group, Western Dairy and other companies also experienced the situation of "increasing revenue without increasing profits".
Against the background of the industry's periodic surplus of raw milk, Youran Animal Husbandry has difficulty in restoring the situation.
Yili is the largest customer
In fact, even though it has been independently separated from Yili, the development of Youran Animal Husbandry has never truly separated from Yili, and its business is still highly dependent on the former.
Take raw milk as an example. Since 2015, Youran Dairy has entered into a framework agreement with Yili to supply raw milk to Yili for a long time, which continues to this day. The latest round of agreements was signed in April 2023. Youran Dairy announced the renewal of the dairy product procurement framework agreement with Yili. The group agreed to supply raw milk to Yili Group from January 1, 2024 to December 2026. Ends on the 31st. The
financial report shows that from 2021 to 2023, the revenue generated by the raw milk sold by Youran Animal Husbandry to Yili Co., Ltd. was 8.757 billion yuan, 10.485 billion yuan, and 12.447 billion yuan, respectively, accounting for 91.8% and 96.6% of the total raw milk sales in the same period. %, 96.5%.
Youran Animal Husbandry also admitted in its annual report: "Yili Group is and has always been the Group's major customer, and the Group's success depends in part on the long-term and stable cooperative relationship with the controlling shareholder Yili."
In terms of equity structure, The financial report shows that as of the end of 2023, Yili holds 34.8% of the shares of Youran Animal Husbandry through its wholly-owned subsidiaries China Youran Animal Husbandry Holdings Co., Ltd. and Jingang Holdings, making it the largest shareholder.
Of course, this cooperation model may lead to dependence on large customers.
In this regard, Youran Animal Husbandry mentioned in the risk warning in the prospectus that the company cannot guarantee that the cooperation with Yili Shares can maintain long-term profits. If there are problems in the cooperation between the two parties, it will have a significant adverse impact on the company's revenue. If Yili shares fail to make timely payments, Youran Animal Husbandry’s cash flow and finances will be significantly affected.
At the same time, Youran Animal Husbandry pointed out that the controlling shareholder, Yili Shares, has significant influence on the company. When the interests of the controlling shareholder are not completely consistent with the interests of other shareholders, the interests of other shareholders may be affected to a certain extent.
Continued expansion raises debt ratio
In recent years, competition in the domestic dairy market has become increasingly fierce, and many companies have chosen to adopt M&A strategies for expansion. Youran Dairy, an upstream pasture enterprise in the industry, is no exception.
In 2021, Youran Animal Husbandry proposed the goal of "rebuilding Youran Animal Husbandry in five years". It plans to exceed 800,000 dairy cows by 2026 and double its feed business. In order to achieve the goal, Youran Animal Husbandry has also accelerated the pace of scale expansion.
As early as July 2019, Youran Animal Husbandry acquired 58.36% of the equity of Seikexing for 2.278 billion yuan; in October 2020, Youran Animal Husbandry acquired the New Zealand dairy giant for 2.31 billion yuan Fonterra owns six ranches in Yingxian, Shanxi and Yutian, Hebei; in 2022, Youran Dairy will acquire 27.16% of Zhongdi Dairy for HK$1.2 billion.
However, radical expansion is a "double-edged sword", and successive years of expansion have also caused Youran Animal Husbandry's debt ratio to rise. From 2021 to 2023, Youran Animal Husbandry’s asset-liability ratios are 53.44%, 66.05%, and 71.65% respectively, showing an overall trend of increasing year by year.
Blue Whale Financial reporter also noticed that Youran Animal Husbandry also carried out asset mortgages many times in 2023.As of the end of 2023, certain bank and other borrowings of Youran Animal Husbandry have been pledged and guaranteed by the company's assets. These assets include 51.73% of the shares of Saikoxing held by a wholly-owned subsidiary of Youran Animal Husbandry, Shanxi Youran's 60.59% of the shares of Tianhe Animal Husbandry Co., Ltd., 61.44% of the shares of Tangshan Youran Animal Husbandry Co., Ltd. and pledged and restricted bank deposits with a book value of RMB 5 million. Whether
’s goal of “rebuilding Youran in five years” can be achieved as scheduled remains to be seen over time.
