As Synutra considers "privatisation',
probably a prelude to returning to the Chinese equity market to raise funds,
the spend required for brandbuilding in 2016 constitutes a major challenge for
domestic formula manufacturers.
On 15 January (US local time), Synutra International, Inc. (Synutra, stock
code: SYUT) announced that the Board of Directors had received a letter of
advice with no legal restrictions. In the letter (of January), CEO Zhang Liang
and his affiliated buyers indicated their intention to acquire common shares in
the business at USD5.91/share. This price represented a 63% premium over the
closing price on 13 January, or a 30% premium over the weighted average closing
price during the previous 20 trading days. (The term "buyers' refers to Beams
Power Investment Ltd., which is wholly owned by Zhang Liang's wife Meng
Xiuqing. To date, Beams Power owns more than 60% of Synutra, the 2nd largest shareholder being private equity group Warburg Pincus.)
"We plan to establish a special committee made up by individual directors, to
assess the suggestion', stated the Board of Directors.
In 2015, domestic-owned infant formula brands surpassed foreign-owned brands in
market share for the first time since 2008. In 2016, as new policies are
issued, the infant formula market faces a major shakeout, constituting a
challenge but also a major opportunity for manufacturers.
Synutra, after listing on the US capital market for 10 years, is now envisaging
"privatisation', probably with the aim of reverting to the domestic equities
market, to obtain higher ratings and easier access to funding for market
expansion in China. It is not the only business planning to expand the domestic
market:
◇ Heilongjiang Feihe Dairy Co.,
Ltd. (Feihe Dairy) is embarking on a drive this year to strengthen its brand:
"We set a goal, that people can see Firmus when turning on or off the TV', said
Wei Jing, Assistant to Feihe's President
◇ Shijiazhuang Junlebao Dairy
Co., Ltd. (Junlebao Dairy) has signed contracts with 3 celebrities for the
promotion of 3 products, also to improve its brand recognition
However, making contracts with such "brand spokespersons' will cost
multimillions and millions. If a "typical' infant formula company has annual
sales of USD107.6 million (RMB700 million), its net profit might be only about
USD7.7 million (RMB50 million). This suggests external funding for brand
promotion is a necessity, as it is evident that regional infant formula
enterprises will need to step up their marketing considerably in 2016.
In addition, the domestic infant formula enterprises are also expanding their
production capacity:
◇ Junlebao Dairy: in 2016 its new
plant at Aiyuan will start up (Shijiazhuang Junlebao Aiyuan Dairy Co., Ltd.
established on 7 January) alongside Taihang (established on 12 September, 2006)
and Junyuan (established 5 September, 2014)
◇ Synutra: on 8 January, the
first phase of its plant in Brittany, France, was officially put into
operation, targeted at contributing to its sales in Q1 FY2017, from 1 April to
30 June, 2016
Brand promotion and capacity expansion complement each other, just as Liu
Miaomiao, General Manager of Junlebao Dairy's Infant Formula Business
Department said: "We are able to expand capacity to a volume valued at USD1.1
billion (RMB7 billion), but currently our sales are only USD110.7 million
(RMB720 million). In order to release capacity and make money, we must rely on
brand promotion to make a regional brand into a national brand. The expansion
in sales coverage is required to cope with the expanding capacity'.
However, it's also true that, as dairy expert Song Liang noted recently: "In
2016, nearly 50% of the infant formula will be imported. This is the largest
challenge to the domestic companies'.
About CCM:
CCM is the leading market intelligence provider for China's agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta.
For more information about CCM, please visit www.cnchemicals.com or get in touch with us directly by emailing econtact@cnchemicals.com or calling +86-20-37616606.
Tag: Synutra, Junlebao Dairy, dairy