Milk producer leading supplier to mainland group

China Youran Dairy, the mainland raw milk producer, has passed listing hearing to raise US$800 million (HK$6.24 billion).

China Youran Dairy was spun off from dairy products producer Yili Group in 2015. Yili Group has a 40 percent stake in China Youran Dairy. Mainland private equity firms, Pacific Alliance Group, is the largest shareholder with a 42.89 percent stake.

Analysts estimate the valuation of the company at between US$4.78 billion and US$6.8 billion.

Founded in 1984, China Youran Dairy was the largest integrated provider of products and services in the upstream dairy industry in China in terms of revenue in 2020, according to Frost & Sullivan.

The company provides raw milk to large-scale manufacturers of premium dairy products. It had a market share of 5.8 percent, which made China Youran Dairy the largest concentrated feed provider for ruminants.

Dairy farms with access to frozen bovine semen, a kind of protein concentration for breeding dairy cattle and beef cattle artificially, in China and overseas are also provided through a subsidiary, SKX.

SKX was the largest dairy breeding company in China in terms of sales volume of frozen bovine semen for dairy cattle in 2019, with a market share of 9.5 percent, according to Frost & Sullivan.

The company operated seven feed mills and cooperated with five third-party feed manufacturers. In 2020, it achieved a total concentrated feed production of 1.01 million tons and provided leading comprehensive ruminant farming solutions to over 500 dairy farms in China, serving over 1 million ruminants.

The company also offers ruminant farming products, such as veterinary drugs, animal husbandry equipment, and other items for dairy farms, through online retail platforms such as Jumuc.com.

As of end-2020, the group had 67 dairy farms in operation with 308,195 dairy cows across 14 provinces in Inner Mongolia, the northeastern region, the central region and the northwestern region of China.

Raw milk production of Youran increased from 588,558 tons in 2018 to 860,413 tons in 2020.

Yili was the group's largest customer. The company generated over 90 percent raw milk business revenue from sales to Yili. Raw milk income accounted for around 60 percent of the total revenue in 2020. Comprehensive ruminant farming solutions income accounted for the remaining 40 percent. Customers who also supplied raw milk to Yili accounted for over 60 percent of the total ruminant farming solutions income.

China Youran Dairy has entered into a long-term raw milk sale and purchase framework agreement with Yili.

Revenue increased by 21.06 percent year-on-year to 7.67 billion yuan (HK$9.05 billion) in 2019 as sales of Yili grew. It further jumped by 53.64 percent to 11.78 billion yuan last year after the company acquired SKX at the beginning of 2020.

Net profit grew by 22.8 percent to 801.88 million yuan in 2019. Profit then grew by 67.20 percent to 1.34 billion yuan. For the three years ended 2020, the compound annual growth rate was 43.30 percent.

The gross profit margin improved from 24.4 percent in 2018 to 30.6 percent in 2020.

The company will use the net proceeds to fund investment over the next two years, including dairy farms under construction, new dairy farms and a feed mill, and purchasing facilities and equipment. Some proceeds will be used for buying dairy cows for new farms. The group plans to import about 20,000 Holsteins from Australia and New Zealand over the next two years.