New Hope’s aim is to exploit the M&A to expand into the northwestern region and connect its market with the company’s southwestern home market. The Ningxia Hui Autonomous Region where the target is based is a major milk source where New Hope is building two huge ranches which it expects to complete by October and which it hopes will operate in coordination with the target.
Chengdu-based New Hope’s shares [SHE:002946] soared at opening to stop trading at CNY11.94 (USD1.68) at 9:50 a.m. on the announcement.
Huanmei Dairy’s main business covers China’s vast northwestern region, and its subsidiary Ningxia Xiajin Dairy Industry Group has a market share of more than one-half in Ningxia. Huanmei Dairy’s revenues in 2017, 2018, and last year’s first eleven months were CNY1.37 billion, CNY1.48 billion and CNY1.38 billion, respectively.
Formed in 2002, New Hope has since been digesting regional dairy companies through M&As. It now has 35 subsidiaries, 13 major dairy brands, 15 milk processing plants and 12 ranches in China. New Hope’s operating income was CNY5.7 billion last year, up over 14 percent on the same period last year. The Southwest and East China markets each made up over 56 percent and almost 25 percent of its total revenue, and other regional revenues accounted for about 8.4 percent.
More than 80 regional dairy companies of different sizes now vie in China. With the continual penetration of Inner Mongolia Yili Industrial Group and China Mengniu Dairy and intensifying competition between one other, the performance growth of regional dairy companies has become difficult and inter-regional mergers and acquisitions are expected to further pick up speed, Song Liang, an independent dairy analyst, told Yicai Global.