The dairy industry is facing a new round of trials.

Li Shengli, the vice president of the China Dairy Association, once shared data that in 2023, China's fresh milk surplus exceeded 2 million tons, and the industry's loss ratio exceeded 80%.

According to the National Bureau of Statistics, in 2023, China's milk production reached 41.97 million tons, a year-on-year increase of 6.7%, achieving the "14th Five-Year Plan" target two years ahead of schedule.

However, in 2023, the national per capita consumption of dairy products decreased by 1.7 kilograms compared to the previous year, and the selling price of dairy products decreased by 4%.

Recently, New Hope Dairy (hereinafter referred to as "New Dairy") announced its performance for the first half of 2024.

The company achieved a business income of 5.364 billion yuan in the first half of the year, a year-on-year increase of 1.25%; net profit was 296 million yuan, a year-on-year increase of 25.26%; although the industry as a whole is not prosperous, New Dairy has achieved profit growth through new categories.

However, looking at the details, in the second quarter of 2024, New Dairy's business income was 2.751 billion yuan, a year-on-year decrease of -0.94%.

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Despite the increase in net profit, the revenue scale is gradually declining, reflecting the weakness of market sales.

Faced with industry competition and market downturn, can New Dairy break through the dairy industry's predicament?

New Hope Dairy, established in 2006, was originally the dairy business segment of New Hope Group.

The company's development history can be traced back to 2001 when New Hope Group intended to enter the dairy industry.

In 2002, New Hope Liuhe successively acquired regional dairy companies such as Sichuan Huaxi, Hangzhou Shuangfeng, Hebei Tianxiang, and Qingdao Qinpai Dairy through controlling or participating in ways, entering the dairy industry by merging and reorganizing local dairy companies.

In 2006, New Hope Dairy was officially established through mergers and reorganizations.

This also laid the foundation for New Dairy's later expansion style of continuous mergers and acquisitions.

After the early mergers and acquisitions, in 2015, New Dairy entered the second round of mergers and acquisitions, successively acquiring regional dairy brands such as Suzhou Shuangxi, Hunan Nanshan, and Xichang Sanmu.

After successfully going public on the Shenzhen Stock Exchange in 2019, it did not stop the pace of mergers and acquisitions.

In July 2019, New Dairy acquired 590 million shares of equity in the raw milk company Modern Dairy with its own funds of 709 million yuan, becoming the second largest shareholder of Modern Dairy, holding 9.28%; in August, it acquired 55% of the equity of Fuzhou Aoniu Dairy with a transaction price of 193 million yuan.

In July 2020, New Hope Dairy obtained 100% equity of Huanmei Dairy, 98.8% equity of Comprehensive Dairy, and 55% equity of Xin Ao Dairy and Xin Ao Dairy, totaling 1.812 billion yuan.

At the beginning of 2021, New Hope Dairy announced the acquisition of 60% of the equity of "A Yogurt Cow" for 231 million yuan; in December, New Hope Dairy purchased 5% of the issued shares of its Australian Asian Investment with self-raised funds of 58.4 million US dollars.

In May 2022, New Hope Dairy took a stake in the new consumer company "Yi Fan Zhi", laying out plant-based beverages.

Through a series of mergers and acquisitions, New Dairy has expanded its market share, but it has also brought a high debt ratio.

In the first half of 2024, the company's debt ratio was 69.59%.

In the past few years, New Dairy's debt ratio has always been at a high value, with debt ratios of 66.65%, 69.81%, 71.79%, and 70.47% respectively from 2020 to 2023.

At the same time, the 2024 semi-annual report shows that New Dairy's non-current liabilities due within one year are 730 million yuan, with monetary funds of 776 million yuan, short-term loans of 885 million yuan, and the pressure to repay debts is relatively large.

From the past few years of New Dairy's mergers and acquisitions, it is not difficult to see that backed by New Hope Group, New Dairy's mergers and acquisitions are very large-scale, and it can be said to be "luxurious and inhuman", because many of the acquisition targets of New Dairy were in a loss state at the time of acquisition.

For example, Suzhou Shuangxi acquired in 2016, the operation of Suzhou Shuangxi was not optimistic after the acquisition.

Another example is the recently "released" "A Yogurt Cow" by New Dairy, which is also a similar situation.

At that time, it spent 231 million yuan to acquire 60% of the equity of Chongqing Xinniu Hanhong Industrial Co., Ltd. (A Yogurt Cow), but after the acquisition, Chongqing Hanhong has been losing money for many years, and finally failed to complete the gambling agreement, New Dairy can only divest this asset by transferring equity.

In November 2023, New Dairy transferred 45% of its equity in Chongqing Hanhong to Grassroots Capital, with a transfer price of 148.5 million yuan.

Grassroots Capital is also a company under Liu Yonghao (Chairman of New Hope Group).

After the transaction, Chongqing Hanhong will change from a wholly-owned subsidiary of New Dairy to a participating company, with a shareholding ratio of 15%, and Grassroots Capital will become the new largest shareholder of Chongqing Hanhong.

If calculated according to the price when New Dairy acquired, when selling equity, the overall valuation of Chongqing Hanhong decreased by about 14.29%.

In 2022 and the first three quarters of 2023, Chongqing Hanhong lost 9.9178 million yuan and 4.1629 million yuan respectively.

Similar to the "left hand to the right hand" capital shuffling, there have been several times before New Dairy went public, in 2015, it transferred the equity of 6 companies to Grassroots Capital Co., Ltd.

In 2016, New Dairy once again transferred the equity of 6 companies under its control to the same Liu Yonghao-controlled Fresh Life Cold Chain Logistics Co., Ltd., with a total transfer price of 40.6915 million yuan.

After a series of mergers and acquisitions, New Dairy finally occupied a place in the market share, but due to the dispersion of brands, it is difficult to make its own brand name.

In the latest five-year strategic plan, New Dairy proposed a growth strategy of "internal growth as the main, mergers and acquisitions as the auxiliary", which also reflects the company's intention to gradually digest the legacy issues of mergers and acquisitions and develop its own intentions.

The pros and cons of low-temperature milk are the main reasons for the increase in performance in the first half of 2024, New Dairy said in the semi-annual report, mainly due to the growth of revenue from low-temperature milk business.

In the first half of the year, its high-end fresh milk increased by about 15% year-on-year, yogurt "Huorun" series achieved a year-on-year increase of 15%, and low-temperature flavored milk increased by more than 40%.

The low-temperature milk track is the key area for New Dairy to focus on.

At the beginning of its establishment, New Dairy locked onto the direction of low-temperature fresh milk.

At that time, the domestic dairy industry's competitive pattern showed a situation where two giants monopolized the country and local dairy companies developed separately.

If you want to grab a share from the big dairy companies, you can only first attack the track they do less.

New Dairy aimed at the field of low-temperature milk, which is the pasteurized milk we often say.

In 2010, New Hope Dairy proposed the "fresh strategy", and later launched the "24-hour fresh cow's milk", starting mainly with fresh milk sales style.

However, there are reasons why the big dairy companies have a small share of low-temperature milk.

Because low-temperature milk faces many difficulties that need to be overcome, such as restrictions on the source of milk, high requirements for cold chain, and market dispersion.

Because low-temperature milk has a high demand for freshness, most low-temperature milk on the market is dominated by local dairy companies, and the difficulty of cold chain transportation also makes it difficult for local milk to go out of the province.

Cold chain transportation also brings higher costs.

The 2024 semi-annual report shows that New Dairy's operating cost is 3.796 billion yuan, and the operating cost rate is 70%, which is relatively high.

In 2023, the company's revenue was 10.987 billion yuan, and the operating cost was as high as 10.444 billion yuan.

High costs bring low profits.

New Dairy's net profit margin in 2023 was only 4.0%, and the gross profit margin was 26.87%.

In contrast, big dairy companies like Mengniu, in 2024, Mengniu's gross profit margin reached 40.3%.

It can be seen that the gross profit margin brought by low-temperature milk is lower than the industry average.

In addition to the cost issue, the decline in consumption in the dairy industry in recent years cannot be ignored.

Some industry analysts said, "New Dairy declined in the second quarter, mainly because the consumption volume has decreased this year, and the consumption volume of the whole industry in the first half of the year decreased by about 5%, which will inevitably lead to the decline of the company's performance or the slowdown of growth."

The challenges of the industry are imminent, can New Dairy stabilize development through low-temperature milk?