Click to read the original text for details. Global dairy new media leader Shiwu recently exclusively learned that Miaokelanduo (since March 15, 2019, the listed company Guangze Dairy was renamed 'Miaokelanduo'), which claims to be the 'first cheese stock,' may change hands, with Mengniu preparing to take over. In response to this news, neither Mengniu nor Miaokelanduo has made an official announcement, and Miaokelanduo has denied the matter. However, Shiwu learned from at least two insiders that the two parties have been in talks for some time, with the main obstacles currently being price and acquisition method: Miaokelanduo's asking price is somewhat high, there is a valuation bubble, and the potential acquirer is focusing on 'squeezing the bubble'; as for whether Miaokelanduo's listed company will spin off its cheese business for sale, or sell the entire cheese and liquid milk business, both transfer methods are possible. It must be clearly pointed out: this news is still pending further announcements and is for industry reference only. Readers bear all risks related to investment decisions and market strategy. Since the end of last year, Miaokelanduo's brainwashing ads have been airing on CCTV. Not Groundless: Let's Analyze Why It's Highly Likely This news can be corroborated from multiple angles. First, since last year, Guangze Dairy has been busy: first, it directly renamed the listed company to Miaokelanduo, then promoted through various media channels, especially CCTV and elevator outdoor ads, and also held a media briefing in Beijing. All signs point to building momentum for one purpose: to enhance brand awareness, quickly boost performance, and thus rapidly increase valuation, so as to sell at a good price when the time is right. Second, the name change is particularly noteworthy: a dairy company primarily engaged in liquid milk and cheese directly changing its company name to a cheese brand name clearly indicates some intention. According to Miaokelanduo's 2018 financial report, liquid milk revenue accounted for 38.17%, and cheese business revenue accounted for 37.19%. Company executives have emphasized focusing on the cheese business on multiple occasions. Clearly, the liquid milk business is only for performance scale considerations; only the cheese business can tell more stories to the capital market. Third, Mengniu Group CEO Lu Minfang has previously emphasized his optimism about the cheese market on multiple occasions. For example, at the 'Agricultural Opening-Up and Food Security' sub-forum of the 2019 China Development Forum in March this year, Lu Minfang said: 'I once gave an example: if China's cheese consumption reaches one-third of Switzerland's, the current global cheese production would not be enough to feed one province in China. This is not an exaggeration; it is a fact. As long as we maintain our current development speed, I believe it will change the pattern of dairy supply across society.' Fourth, in the nearly three years since Lu Minfang became Mengniu's CEO, he has carried out major reforms in milk sources, liquid milk, and milk powder, with significant results. In addition, the cold drinks division has also improved considerably in recent years. Currently, only the cheese segment has not seen major moves. For this niche segment expected to rise in three to five years, it is time to plan ahead. According to the aforementioned insiders, the reason this matter has not yet been settled is mainly due to two factors: 1. Miaokelanduo's asking price is too high, requiring further bargaining; 2. The acquisition method has not been finalized, such as whether to take over the entire company or only the cheese business. As mentioned above, Miaokelanduo has been investing and promoting since last year, and these costs will certainly be passed on to the acquisition asking price. Miaokelanduo, Under Performance Pressure, Has to Seek a Way Out In 2001, Guangze Dairy was established in Changchun, producing liquid milk, milk powder, soy milk, cheese, and other products. In May 2008, Guangze Dairy formed a joint venture with French cheese company Savencia and American company Solae, transforming Guangze Dairy into a Sino-foreign joint venture. In May 2016, Guangze Dairy underwent asset swap with Hualian Mining, achieving backdoor listing. Initially, they planned dual main businesses, but the gap between dairy and mining was too large to manage both, so they adopted asset swap to achieve single main business and concentrate resources on dairy development. In 2016, 2017, and 2018, Guangze Dairy's revenues were 510 million, 980 million, and 1.23 billion yuan respectively, showing continuous growth. However, net profits were not optimistic: 32.21 million, 4.28 million, and 10.64 million yuan for the three years from 2016 to 2018. Clearly, Guangze Dairy (Miaokelanduo) has had poor profitability over the past three to four years. Even with annual profits of around ten million yuan, upon careful examination, knowledgeable people know that after deducting non-recurring gains and losses, Guangze Dairy is actually loss-making. The actual controller of Guangze Dairy (Miaokelanduo), their female boss Chai Xiu, could not hold on before the cheese spring arrived. Under operational pressure, she had to find a way out. Why is Miaokelanduo facing operational pressure? Mainly because the liquid milk business cannot grow, limited to Changchun and Jilin area, with Huishan to the south and Wandashan to the north, while also being attacked by Yili, Mengniu, and Junlebao. China's cheese market consumption awareness is still in a growth stage, making it difficult to grow in the short term. High-end catering and hotels are dominated by Anchor and other imported brands. It is worth noting that in Guangze Dairy's equity structure, the actual controller Chai Xiu holds a relatively low stake, only about 18%, with the rest held by institutional investors and retail investors. From the equity structure perspective, if Miaokelanduo seeks acquisition, if it is only Chai Xiu's wish, it is highly likely to introduce strategic investors or industrial investors, with a stake of around 20%. If it is a joint decision by the actual controller and all institutional investors, then it is possible to transfer controlling rights, depending on whether institutional investors can continue to hold on until the cheese spring arrives. China's Cheese Landscape Is Changing Cheese is a fermented dairy product. Each kilogram of cheese is concentrated from 10 kilograms of milk, rich in protein, calcium, fat, phosphorus, vitamins, and other nutrients. Compared with milk powder, liquid milk, and other dairy products, cheese has higher nutritional value and better fits the trend of consumption upgrade. Customs data show that in 2017, China imported 108,000 tons of cheese, with total cheese exports of about 300 tons. In the same year, China's cheese consumption reached 191,000 tons, with domestic production of only 83,300 tons. China's cheese consumption heavily relies on imports, with imports accounting for 63% of demand in 2016. Although production increased significantly in 2017, imports still accounted for over 50%. Due to low domestic cheese production, China mainly relies on OEM imports or imported processing to meet domestic demand. Competition among domestic cheese manufacturers is not fierce; instead, there is a stronger willingness to cooperate in expanding the domestic cheese market. In the early 1990s, cheese products were rare in domestic retail stores, with only a few brands like 'Kraft' and 'Anchor.' However, with the rise and popularity of Western fast-food restaurants like McDonald's and Pizza Hut, Chinese consumers gradually became aware of cheese products, which then entered large supermarkets. Today, there are dozens of cheese products in supermarkets, including: Duomeixian, Weidaomei, Land O'Lakes, Anchor, Meilan, Zhisile, Zhiweishi, Kraft, Aitemeng, Mutong, Guangming, Mengniu, Baijifu, etc. Domestic dairy companies such as Sanyuan, Yili, and Mengniu have been making cheese, but it is only a supplement to their product categories, without significant volume. From Miaokelanduo's 2018 financial report, its cheese business annual revenue is around 400 million yuan, which is quite considerable in the domestic cheese industry. Moreover, its brand awareness is relatively focused. If well cultivated, it could be developed into a high-end domestic cheese brand. In fact, this high-end strategy aligns well with Mengniu's current strategic direction. Since Lu Minfang took office, Mengniu has been adhering to high-end and international development. If Mengniu takes a stake in or acquires Miaokelanduo, it will become the leading domestic cheese brand in the future. This is not only about long-term layout but also about firmly controlling the discourse power in the cheese segment for the next five or even ten years. We all talk about 'China's dairy industry revitalization,' which includes not only the revitalization of domestic milk and milk powder but also the rise of domestic cheese. Source: Shiwu (ID: food-gnosis)