---
title: "How Does Vitasoy, Nearly 80 Years Old, Continue Its Performance Myth?"
description: "On June 20, Vitasoy International announced its annual results for the fiscal year 2018/2019 ended March 31, 2019, showing revenue of HK$7.526 billion, up 16% year-on-year; gross profit of HK$4.042 billion, up 18.19%; and profit attributable to equity holders of HK$696 million, up 19%. The mainland China market, which is of most concern, increased its contribution to Vitasoy's total revenue from 54% to 62%. This article reviews Vitasoy's historical performance, its growth in the mainland market, and the challenges it faces."
author: "New Distribution"
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published: "2019-06-23"
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# How Does Vitasoy, Nearly 80 Years Old, Continue Its Performance Myth?

> On June 20, Vitasoy International announced its annual results for the fiscal year 2018/2019 ended March 31, 2019, showing revenue of HK$7.526 billion, up 16% year-on-year; gross profit of HK$4.042 billion, up 18.19%; and profit attributable to equity holders of HK$696 million, up 19%. The mainland China market, which is of most concern, increased its contribution to Vitasoy's total revenue from 54% to 62%. This article reviews Vitasoy's historical performance, its growth in the mainland market, and the challenges it faces.

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On June 20, Vitasoy International announced its annual results for the fiscal year 2018/2019 ended March 31, 2019, showing full-year revenue of HK$7.526 billion, a year-on-year increase of 16%; gross profit of HK$4.042 billion, an increase of 18.19%; and profit attributable to equity holders of HK$696 million, a year-on-year increase of 19%. Among them, **the mainland China market, which is of most concern, increased its contribution to Vitasoy's overall revenue from 54% to 62%.**
Looking back at Vitasoy International's performance in recent years, it is found that the highlight of its fundamentals lies in the word "stability." In terms of revenue and net profit, except for the significant impact of the sale of the North American business in 2016 and the adjustment of the Singapore distributor issue (the sale of the North American business in 2016 led to a surge in net profit that year, while revenue declined in 2017; excluding the impact of the sale of the North American business, revenue growth in 2017 was 6%, and net profit growth was 2%), other years maintained steady growth.
△Data source: Financial reports
**"A Bottle of Milk" Nurtures a Generation**
The story of Vitasoy should start in 1936. At the end of 1936, Lo Kwee-seong accidentally heard a public speech in Shanghai by Arnold, the American commercial attaché stationed in China, titled "Soybean - China's Cow." The gist was that soybeans are highly nutritious, containing protein as high as milk, and soybeans are China's dairy cow. For thousands of years, Chinese people have used soybeans as a staple food and nutritional source, so Chinese people are healthy even without drinking milk.
These words made the young Lo Kwee-seong begin to realize the importance of soybeans.
After returning to Hong Kong, Lo Kwee-seong witnessed his compatriots in refugee camps suffering from the devastation of the Japanese invasion of China, impoverished and sick, severely malnourished. Influenced by the Confucian idea of "thick living" (cherishing life), he was determined to contribute his own strength to save these compatriots struggling on the brink of death.
In 1940, Lo Kwee-seong established Hong Kong Soya Bean Products Company with HK$15,000 and finally developed "the poor man's milk." Looking at this milky white liquid that resembled milk, Lo Kwee-seong named it soy milk. This was a very creative concept, and from then on, Hong Kong people had their own milk.
What is particularly commendable is that they gave this purely Chinese product a rather Westernized name, "Vitasoy," which reminds people of vitamins, indispensable for human health.
On April 3, 1940, Vitasoy was officially launched, and a small glass bottle began to sweep through Hong Kong.
In Hong Kong's soy milk industry, it exists like a god, accompanying the growth of generation after generation of Hong Kong people.
In the 1990s, Vitasoy saw the potential of the mainland market. In 1994, Vitasoy entered the mainland market from Shenzhen, but at that time, the mainland market did not immediately become the imagined gold mine. Ready-to-drink soy milk faced dual pressure from milk and industry competition, and the mainland business did not achieve explosive growth in the short term. In fiscal year 2006, Vitasoy's revenue in the mainland was only HK$171 million, accounting for less than 7%. Since then, the mainland business revenue maintained a year-on-year increase of HK$100-200 million until fiscal year 2014, when it showed signs of "explosive growth" - the revenue increase rose to about HK$400 million. By fiscal year 2016, mainland revenue exceeded that of Hong Kong and Macau markets.
After more than a decade of development, the mainland market has become Vitasoy's main source of revenue. At the same time, Vitasoy has also become the absolute leader in China's liquid packaged soy milk. According to statistics from Gauge Securities, Vitasoy's market share is as high as 40.2%, far ahead of other brands.
Among the many products, the most popular is still Vitasoy soy milk. In order to always maintain a fresh feeling in consumers' minds, Vitasoy soy milk continuously undergoes product upgrades and innovations. Now, the Vitasoy soy milk series has more than 20 flavors to choose from, including vanilla soy milk, coffee almond soy milk, chocolate almond milk, and more.
In addition, Vitasoy also has another star product, the internet-famous drink Vitasoy lemon tea. In Hong Kong, Vitasoy lemon tea was launched in 1979 and was immediately sought after for its unique sour and astringent taste. Mainland consumers are even more unable to resist its magical taste, with some netizens joking, "Vitasoy lemon tea, better than smoking marijuana; Vitasoy enters my heart, forgetting heroin."
△Data source: Euromonitor, Gauge Securities
Vitasoy lemon tea has become the main driver for Vitasoy's expansion in the mainland market. Now, the scale of Vitasoy lemon tea may have exceeded that of Vitasoy soy milk products, and Vitasoy lemon tea will undoubtedly bear half of the mainland business. April 1, 2019 marked the beginning of Vitasoy's new fiscal year, and Vitasoy set a target of RMB 5 billion in revenue for the mainland market. Securities companies predict that with a promising future for the lemon tea market, Vitasoy lemon tea is expected to become a 5 billion yuan single product.
In order to adapt to increasingly diversified consumer demand, Vitasoy continues to expand its product line, forming a situation from Vitasoy soy milk standing alone to various beverages each leading the way. Last year, Vitasoy launched multiple new products in the mainland market, including various flavors of Vitasoy unsweetened tea series, and "Vitasoy Health Plus" targeting the high-end market. At the same time, Vitasoy also launched soy milk specifically for coffee channels, such as for Starbucks, hoping to take a share of the rapidly growing coffee market in recent years. Earlier this year, Vitasoy also launched a more environmentally friendly plain soy milk in the mainland to further reduce the carbon footprint of its products.
**China's Coca-Cola?**
In addition to its considerable growth rate in the mainland market, Vitasoy has also written a legend in the Hong Kong stock market.
It is understood that since its listing in 1994, Vitasoy International's stock price has been rising all the way, reaching a historical high of HK$47.25 on June 13, 2019, with a market value exceeding HK$50 billion at one point, a rise of up to 56 times. The maximum increase in the past decade is also close to 15 times, making it a veritable long-term bull stock.
Vitasoy belongs to the FMCG category, with sales channels mainly including catering channels and circulation channels, and the unit price is relatively low. Such a small business can actually achieve a trend comparable to Moutai, and has the title "North has Haitian, South has Vitasoy," and is hailed as China's "Coca-Cola" in the investment and financing circles.
△During the financial crisis, the Hang Seng Index fell sharply, but Vitasoy remained strong. Note: The yellow line is the Hang Seng Index. Source: Choice
But this legendary bull stock recently took a considerable fall.
Although Vitasoy achieved double-digit growth in revenue and net profit this fiscal year, in fact, its full-year revenue growth rate declined by 5 percentage points compared with the 21% in the same period last year. Among them, Vitasoy's most important market - mainland China - saw revenue increase by 25% year-on-year, down 13 percentage points from the same period last year.
Since hitting a historical high on June 13, Vitasoy International's stock price began to decline sharply, falling nearly 18% in the past six trading days, with market value dropping nearly HK$9 billion. The cause of the significant stock price fluctuation should be this just-announced annual performance with rapidly slowing growth.
Corresponding to the domestic market, Vitasoy's performance in overseas markets during the reporting period was even less satisfactory. The financial report shows that Vitasoy's revenue in Hong Kong during the reporting period was only flat with the previous year. If the export beverage business not yet sold in North America is included, Hong Kong business revenue only increased by 2%. Due to the investment in a two-year production and logistics facility upgrade plan, Hong Kong business operating profit decreased by 8%. Overall, Vitasoy's performance in overseas markets in fiscal year 2018 was not very outstanding.
**How Much Growth Is There in the Future?**
The soy milk market is still growing, but the growth rate is slowing.
From 2014 to 2018, the compound annual growth rate of volume and sales value of packaged soy milk beverages (including ready-to-drink soy milk) in the Chinese market were 9.3% and 12%, respectively, far exceeding milk's 1.1% and 4.6%. In the next five years, the growth rate of soy milk and soy beverage products will still be more than twice that of milk.
Statistics from professional institutions show that from 2008 to 2018, the sales value of liquid packaged soy milk in China increased from RMB 3.22 billion to RMB 9.64 billion, with a CAGR of 10.1%; sales volume increased from 635,000 tons to 1.247 million tons, with a CAGR of 7.0%; among them, retail channel sales volume increased from 592,000 tons to 1.14 million tons, with a CAGR of 6.8%, accounting for 91.4% in 2018; catering channel sales volume increased from 43,000 tons to 107,000 tons, with a CAGR of 9.5%, accounting for 8.6% in 2018. The industry is still growing, but the growth curve is clearly beginning to decline.
Although in the mainland China market, no enterprise that can threaten Vitasoy's "hegemony" has yet appeared, some potential concerns are still worth facing squarely.
The first is the issue of development stamina. As mentioned earlier, Vitasoy's strongest revenue and profit currently come from the mainland market, but as we have seen, its mainland market performance growth has already hit the apex of the parabola in the past two years. The company itself also frankly stated that it expects overall performance to become increasingly moderate in the future. As the growth rate of the strongest mainland market slows down, Vitasoy indeed needs to consider the issue of long-term development stamina. At present, although it has mentally prepared for the gradual slowdown of performance growth, it seems that the company has not yet found a precise focus on how to solve this problem.
On the other hand, although in the near term Vitasoy's raw material prices are in a favorable stage of decline, there is still the possibility of fluctuations in the future; coupled with the relatively large fluctuations in the RMB exchange rate this year, these uncertainties will affect Vitasoy's performance in the future.
In addition, whether in the local Hong Kong or mainland market, Vitasoy has always faced considerable industry competitive pressure. Although the company has successfully maintained a certain foothold, the intense industry competition has never eased. In addition to domestic dairy industry giants Yili and Mengniu, Vitasoy also has to deal with the pursuit and competition from enterprises with similar types of products such as Wahaha, Want Want, and Dali Foods. It can be said that it cannot relax for a moment.
Source: Compiled and edited by <New Distribution>


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