How important is it to seize the "source" of a business? Just look at NONGFU SPRING CO., LTD..

Compared with other competitors, NONGFU SPRING CO., LTD. occupies 10 water bases. To put it simply, it laid out a good source of water a long time ago, with high barriers. As a result, NONGFU SPRING CO., LTD. was 1148.3 times subscribed at the public offering stage, and the bank locked in as much as HK $677.7 billion in capital, making it the "capital freeze king" in the history of Hong Kong stock IPO.

For the dairy industry, the importance of milk sources is needless to say.

Just now, China Feihe Limited, the leader of domestic milk powder, bought the original ecological animal husbandry with 3.1 billion yuan, and confronted Mengniu and Yili head-on on the milk source.

For this acquisition, in China Feihe Limited's own words, "consolidate the stability of upstream raw milk supply, increase control over the upstream industrial chain, and reduce the impact of rising raw milk prices." "

What is worth paying attention to is that Feihe has always taken a very strong channel as a barrier, and then there is a milk source "plus". Will Mengniu, Yili and other opponents panic?

To thisA number of public equity fund managers expressed their views, and their divergent views are quite surprising.

140 billion dairy tycoons enter the original ecology

Feihe, which focuses on infant milk powder, has also joined the battle for milk supply!

China Feihe Limited and the original ecological animal husbandry issued a joint announcement on the evening of September 6, saying that Feihe intends to entrust CITIC Lyon to make a voluntary conditional cash offer to the original ecological animal husbandry at a price of HK $0.63 per share (a premium of 1.62% over the previous trading day of the original ecological animal husbandry). At the same time, cash in exchange for the cancellation of all outstanding share options, the value of the share offer is about HK $3.071 billion.

After the success of this offer, Feihe will become the controlling shareholder of the original ecological animal husbandry, while maintaining the listing status of the original ecological animal husbandry.

Regarding this offer, China Feihe Limited said in the announcement thatThis will further strengthen its leading position in the market for high-end infant formula products, unlike the major brands that sell their products in China, which usually use imported milk powder as the main raw material.

In addition, the announcement also shows that China Feihe Limited has no intention of privatizing the original animal husbandry after the end of the offer, and intends to maintain the listing status of the original animal husbandry on the main board of the Stock Exchange. China Feihe Limited can further improve the performance of the original animal husbandry and promote its strategic development.

Data show that China Feihe Limited logged on to the Hong Kong Stock Exchange in November 2019 and became the largest dairy company by market capitalization in the history of Hong Kong stocks. As of this afternoon, it was reported at HK $16.12 per share, with a market capitalization of over HK $140 billion, second only to China Mengniu Dairy.

What do you want to do?

In fact, it is not surprising in the industry that Feihe "swallowed" the original ecological animal husbandry.

This is partly because the company's products use milk as the main raw material. On the one hand, Feihe relies heavily on the original ecological animal husbandry, which is its largest milk supplier; on the other hand, the milk source has always been the "heart disease" of Feihe.

According to the relevant financial report, more than 80% of Feihe's total cost of purchasing fresh milk was paid to the original animal husbandry from 2016 to 2019, with the proportion as high as 88.6% by the middle of last year.

In Feihe's prospectusFeihe lists reliance on upstream companies as its "risk factor".Feihe said that "it relies on a limited number of dairy producers as the main suppliers of fresh milk, and any shortage or interruption of supply from these suppliers may delay the production of the company's products and reduce sales."

"after the success of this offer, Feihe will become the controlling shareholder of the original ecological animal husbandry, and Feihe will also increase control over the upstream industrial chain and reduce the impact of rising raw milk prices while consolidating the stability of upstream raw milk supply." Feihe stressed in the acquisition announcement.

In fact, China Feihe Limited is one of the few suppliers of infant formula in China that uses fresh milk as the main ingredient of all its infant formula products. Therefore, high quality and stable supply of fresh milk is the key to China Feihe Limited's infant formula products.

It is worth noting that, relying on its strong channel management and control ability, revenue in the first half of the year under the impact of the epidemic still recorded 8.706 billion yuan, a year-on-year increase of 47.8%. Set a new high in recent years.

Mengniu and Yili have already made a move.

As a matter of fact, "those who get the milk source get the world" has become the consensus of the industry. For downstream dairy enterprises, the importance of controlling upstream milk sources is self-evident, and the competition for milk sources has existed for a long time.

In January 2017, for example, China Mengniu Dairy and Hyundai announced on the Hong Kong Stock Exchange that China Mengniu Dairy planned to buy 16.7 per cent of Hyundai's shares at HK $1.94 a share.

China Mengniu Dairy said in the announcement that the purpose of this acquisition is to strengthen Mengniu's position in the high-end dairy market, support the development of low-temperature dairy products, and become a comprehensive market leader with outstanding ability to control the entire value chain and further improve operational efficiency.

In 2019, Yili acquired a 58.36% stake in the new third-board listed dairy company Secco through Youran Dairy, and announced again in August 2020 that it would subscribe for a 16.6% stake in Zhongdi Dairy for 183 million yuan.

Generally speaking, Feihe acquired the original ecological animal husbandry this time.It is another strong entry of head dairy enterprises after Mengniu and Yili started the battle for milk sources in 2020, which not only conforms to the industry trend of arranging upstream milk sources and ensuring the safe and stable supply of fresh milk, but also beneficial to the safety and stability of the dairy industry as a whole.

The opinions of fund managers differ greatly.

In fact, there has been a lot of controversy and criticism about the milk powder giant, which has been targeted by short sellers twice in a year. The stock has risen more than 120% since it went public in 2019.

Looking down, will China Feihe Limited continue to be popular with the "plus" milk source?

In this regard, fund managers are not small differences.

A public fund manager with an equity fund management size of more than 30 billion"Feihe and the original ecosystem account for a very high proportion of each other's business, so I think Feihe's acquisition is to allay concerns about related party transactions or profit transfer," he said. "

The fund manager added「Milk sourceAt present, it is no longer for Feihe.Too big a problem, for example, last year, the original ecology could account for about 80% of Feihe, so he putUpstreamControl好Later, in the back.In other ways, this companyIt's not a big problem anymore.」

However, another fund manager believes that Feihe has been doing very well some time ago, butIt is a phased one.好Business.

The fund manager explained, "Feihe has done a good job in the channel, and there is a lack of high-quality enterprises in high-end milk powder in China, and the company sells crazily through strong channels." And it makes great efforts to develop high-end products, the psychological grasp of people is very accurate, milk powder is to be expensive is good, cheap is not.However, the flying crane enjoys this.Wave channel dividendIs replicable when other dairy productsThe giant got it.He will imitate, and his performance may be phased. "