On May 5, New Hope Dairy made an announcement of its momentous asset reorganization. New Hope Dairy will spend RMB 1.7 billion for the acquisition of Xiajin Dairy. New Hope Dairy will bear 60% of the cost from its savings and the remaining 40% will be collected and paid by cash via convertible bond.
Xiajin Dairy, founded in 1992, is considered one of the key enterprises in the dairy industry in the northwest of China. Xiajin Dairy is also a national leading enterprise of agricultural industrialization. Xiajin Dairy was located in Ningxia Autonomous Region, which is well known for its plentiful agricultural resources, favorable geographical conditions, and rich culture. After Xiajin Dairy was developed，it spread its market to other provinces in the northern and northwestern China, such as Shaanxi and Gansu, as well as major cities north of Changjiang River. Xiajin Dairy owns more than 400 distributors and accounts for more than 50% of the market share of Ningxia.
A report showed that recently the annual income of Xiajin Dairy reached RMB 1.5 billion with a profit of over RMB 100 million. The net profit ratio of Xiajin Dairy was 8.1%, which is higher than the average net profit ratio in the dairy industry. New Hope Dairy’s acquisition of Xiajin Dairy will not only upgrade the scale of business but also increase the business’s profits. Analysts believe that the acquisition of Xiajin Dairy is a reasonable decision because of Xiajin Dairy’s great development prospects.
The annual report recently released by New Hope Dairy showed that the revenue of New Hope Dairy in 2019 was RMB 5.7 billion, which is an increase of 14.1% compared to the same period of last year.
New Hope Dairy subsidiaries suffer losses during recent years
New Hope Dairy started its business in the dairy industry in 2006. 37 equity participation subsidiaries of New Hope Dairy are responsible for the main business operations while the listed company’s main responsibility is management. The subsidiaries of New Hope Dairy are divided into two types. The first type is production sales companies which are all owned by New Hope Dairy. The second type is self-owned ranches which New Hope Dairy influences mainly through investments. Among 37 subsidiaries, 21 earned a profit of less than RMB 1 million while 13 suffered from a great deficit in the first half of 2018. Out of 15 self-owned ranches, 13 ranches also suffered from a great loss except for ranches in the Yunnan province. As for the 17 production sales companies under New Hope Dairy, only two of the companies gained profits for New Hope Dairy while the others received low profits or suffered a deficit.
Chinese dairy industry projected to decline during COVID-19
Earnings of listed dairy enterprises universally decreased at the beginning of 2020 under the effect of the COVID-19 virus. Yili, one of the national leading dairy enterprises in China, released its financial report in the first quarter of 2020. The report showed that the revenue of the first quarter was RMB 20.5 billion, which was a decrease of 11% compared to the same period last year. The profit of the first quarter was RMB 1.7 billion with a decrease of 39.2% compared to the same period last year. The revenue of New Hope Dairy in the first quarter of 2020 was RMB 1.1 billion, which was a drop of 49.8% compared the same period last year. It is estimated that many medium-sized and small dairy companies may not survive the COVID-19 period. However, leading dairy enterprises with economic strength will take a large percentage of the dairy market in China.
For more information on China’s dairy market, please check our Dairy Products China News.