---
title: "Kedi Dairy: Holding 1.7 Billion in Cash Yet Accused of Owing Milk Payments for 19 Months"
description: "Kedi Dairy, once famous for its 'Little White Milk' product, is embroiled in a controversy over unpaid milk payments to farmers, owing about 140 million yuan since 2018. Despite having 1.7 billion yuan in cash and paying dividends, the company faces accusations of fund mismanagement and strategic missteps, reflecting the struggles of regional dairy firms under pressure from industry giants."
author: "栾立 陈琼"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-08-05"
language: "en"
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# Kedi Dairy: Holding 1.7 Billion in Cash Yet Accused of Owing Milk Payments for 19 Months

> Kedi Dairy, once famous for its 'Little White Milk' product, is embroiled in a controversy over unpaid milk payments to farmers, owing about 140 million yuan since 2018. Despite having 1.7 billion yuan in cash and paying dividends, the company faces accusations of fund mismanagement and strategic missteps, reflecting the struggles of regional dairy firms under pressure from industry giants.

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The "milk payment dispute" has also torn open a gap, exposing the capital shortage of Kedi Dairy, which is eager to diversify, and reflecting the difficulties of regional enterprises under the squeeze of leading dairy companies.
Kedi Dairy, which once created the "Little White Milk" miracle, has recently fallen into a "milk payment dispute." Several dairy farmers gathered in front of Kedi Dairy's company gate to demand payment after failing to receive their milk payments. It is understood that Kedi Dairy began owing milk payments to farmers in 2018, and the current amount owed is approximately 140 million yuan. Notably, Kedi Dairy had 1.7 billion yuan in cash on its books in the first quarter, and also distributed dividends in 2018, which all seems contradictory.
The "milk payment dispute" has also torn open a gap, exposing the capital shortage of Kedi Dairy, which is eager to diversify, and reflecting the difficulties of regional enterprises under the squeeze of leading dairy companies.
**Farmers Come to Demand Payment**
In a "Letter from Dairy Farmers for Help," it is stated that starting from December 2017, Kedi Dairy began owing milk payments to farmers, involving over a thousand households, with an amount of about 140 million yuan. Farmers have repeatedly demanded payment from Kedi Dairy, but the company has repeatedly made excuses, and they have not received their money to this day.
An unnamed source said they started supplying milk to Kedi Dairy in 2017. Initially, payments were made monthly and were normal, but over time, payment periods were extended, and payments became insufficient, with arrears accumulating without any explanation.
Since the dairy farming industry is capital-intensive, and cows consume large amounts of feed daily, the costs are high. After a prolonged downturn in the dairy industry, farmers had not yet recovered, and now face long-term arrears in milk payments, making life difficult for Kedi Dairy's farmers, who are living in distress with no one to turn to.
On July 31, representatives of dairy farmers from Shandong, Shanxi, Tianjin, Hebei, Henan, and Jiangsu began to gather in Yucheng, where Kedi Dairy's factory is located, hoping to recover the long-overdue milk payments.
"The smallest amount is over 3 million yuan, and the largest is 40 million yuan," a farmer representative at the Henan site told reporters. However, several Kedi Dairy executives were present that day, but because the actual controller, Chairman Zhang Qinghai, was unreachable, the executives looked at each other and had no authority to make decisions.
"Where did the money go?" an angry farmer asked reporters. Kedi Dairy's operations are normal, so why aren't they paying for the milk?
**Huge Cash on the Books**
Kedi Dairy's 2018 annual report shows revenue of 1.29 billion yuan and net profit of 130 million yuan. It is a regional listed dairy company mainly focused on the Henan market, with mediocre performance. In 2017, its product Little White Milk became a hit online, but why has it owed farmers such a large amount of milk payments for so long?
Reporters repeatedly called Kedi Dairy's executives, including Chairman Zhang Qinghai, Deputy General Manager Wang Shouli, and the Securities Affairs Department, but they all refused or did not answer, and the publicly listed securities affairs phone was turned off.
Zhang Shaohua, daughter of Kedi Dairy Chairman Zhang Qinghai, admitted in a media interview that the entire Kedi Group is under significant financial pressure, mainly due to tightened credit, loan recalls, and the company investing loans into long-return-cycle areas such as production base and breeding base construction.
**But Kedi Dairy's financial data suggests otherwise.**
According to the financial report, in 2018, Kedi Dairy's monetary capital balance was as high as 1.672 billion yuan, a year-on-year increase of 76.2%, accounting for 49.43% of total assets, with demand deposits accounting for as much as 69%. In 2018, Kedi Dairy also used 20.8 million yuan for dividends.
By 2019, Kedi Dairy's operations had not changed. In the first quarter, its monetary capital continued to grow to 1.77 billion yuan, and cash flow from operating activities was 110 million yuan, a year-on-year increase of nearly 30%. According to the latest performance forecast announcement, Kedi Dairy expects a net profit of 82.9854 million to 87.5237 million yuan for the first half of the year, a year-on-year increase of 28% to 35%. The main reason for the significant year-on-year increase in net profit in the first half is the increase in sales revenue and improvement in profitability. Qichacha data shows that Kedi Dairy has been involved in continuous lawsuits in the past two years, with multiple contract disputes this year. Several enterprises have applied for property preservation against Kedi Dairy, including Jiangxi Leading Liansheng Advertising Co., Ltd., which applied to freeze up to 28.52 million yuan in January. Additionally, since this year, complaints about Kedi employees demanding unpaid wages have appeared on some websites.
**The Truth Awaits**
In the industry's view, if there is a large amount of cash on the books, good operations, and dividends paid, yet the company owes milk payments—one of the most critical materials for a dairy company—for nearly two years, it seems very unreasonable. But until Kedi Dairy provides an explanation, the real reason is speculative.
Independent dairy analyst Song Liang told reporters that the timing of the suspension of milk payments may not be a coincidence. From the end of 2017 to the beginning of 2018, Yili and Mengniu began channel下沉 nationwide, and the Henan market was one of the main attack areas, which impacted Kedi Dairy's core market. It cannot be ruled out that the money on Kedi's books has been diverted for other uses.
There are also speculations that Kedi has money but doesn't use it, perhaps because the money cannot be used, or due to some undisclosed reasons, it can only be used for fixed purposes.
It is worth noting that while Kedi Dairy has a large amount of monetary capital, it has also significantly increased its debt. In 2018, Kedi Dairy's interest-bearing debt balance was 1.198 billion yuan, a year-on-year increase of 47.36%, accounting for 35.42% of total assets. During the reporting period, the company's financial expenses were 46.1004 million yuan, accounting for 35.70% of net profit.
This practice also drew a concern letter from regulatory authorities. In response, Kedi Dairy explained that this situation arose because, on the one hand, the company planned to further expand production capacity and needed to prepare corresponding construction funds. On the other hand, Kedi Dairy has six business segments that require batch working capital support, and the company must have sufficient capital reserves to cope with unpredictable financial risks.
On the other hand, in the view of Shen Meng, executive director of Xiangsong Capital, having money for dividends does not necessarily mean the company is truly profitable; performance can be artificially packaged.
Kedi Dairy has been eager to inject the major shareholder's asset, Kedi Quick-Frozen, into the listed company at a high premium. According to Qichacha data, the major shareholder of Kedi Group is the family of Chairman and General Manager Zhang Qinghai, holding as much as 92%.
According to the financial report, Kedi Dairy's controlling shareholder, Kedi Food Group, holds 484.69 million shares, a stake of 44.27%, and cumulative pledges account for 99.96% of its shares in the company.
In Shen Meng's view, on the one hand, by acquiring the major shareholder's assets through a listed company's share issuance, the major shareholder can cash out and obtain a large amount of funds; on the other hand, by packaging Kedi Quick-Frozen as a high-quality asset and injecting it, it can stimulate the stock price, which can also alleviate the capital problems and liquidation risks caused by falling stock prices.
But what the truth is remains to be seen.
**Behind the Phenomenon**
"This matter objectively reflects a very realistic situation: many regional enterprises are performing very poorly, many are losing money, and many are selling assets, land, and equipment to maintain operations," said dairy expert Song Liang. Kedi Dairy, involved in the "milk payment dispute," exposes its capital shortage, "possibly due to a capital shortfall caused by diverting some funds."
Against the backdrop of increasing internationalization of the Chinese market, leading enterprises are accelerating market concentration, causing regional enterprises' performance to decline continuously. Many enterprises are selling assets to survive, and some are severely short of funds and in trouble. Kedi Dairy is a typical example.
In Song Liang's view, regional dairy enterprises are finding it increasingly difficult to survive, and in the future, they may follow a path of asset sales and low-priced shell resource sales.
**The Fall of "Little White Milk"**
**In Kedi Dairy's development path, there were two fleeting opportunities, but now it seems both were missed.**
On June 30, 2015, it was listed on the Shenzhen Stock Exchange main board. After that, Kedi Dairy's "annual production of 400,000 tons of liquid milk project" was successfully put into operation, solving the capacity shortage problem. It successfully acquired Luoyang Juer Dairy Company, which has a history of over 60 years, achieving the strategic layout of a central region dairy giant. It completed the renovation and expansion of 100,000 tons of low-temperature milk and cold chain logistics construction, increasing the company's market competitiveness and profitability. **However, subsequently, Kedi Dairy shifted its focus to the construction of retail stores, "setting up thousands of retail stores, and then losing a lot of money. If he had used that money for product research and development and brand building, I think today Kedi would still be an important force among Henan's leading local enterprises, but he missed that opportunity," Song Liang pointed out.**
**2017 was Kedi Dairy's moment of glory.** That year, Kedi Dairy launched a hit product, Little White Milk, which became an internet sensation and made a fortune. Sales of room-temperature dairy products, including Little White Milk, increased by 65.8%, and Kedi Dairy quickly rode the wave, successfully entering the national consumer's view.
The fall came just as quickly. In the first half of 2018, Kedi Dairy's Little White Milk "was no longer popular." The revenue of room-temperature dairy products represented by it decreased by 25.62% year-on-year, and the gross margin also dropped significantly, from 26.43% last year to 18.97%, a decrease of 7.46 percentage points.
In Song Liang's view, **the main reason for the short-lived success of Little White Milk is the low entry barrier, because the product is not highly technical. Secondly, Kedi's product structure is single, with few high-margin products.**
Success came from the internet-famous milk, and failure also came from it. Kedi Dairy also realized the risk of a single product structure. At the end of June 2019, at Kedi Dairy's national distributor conference, Wang Deli, deputy marketing general manager for the southern region, pointed out, **"Reducing the sales proportion of internet-famous milk is an important measure for us to diversify product risks, while increasing efforts to promote sales of other single products."** Wang Deli pointed out that Little White Milk's sales proportion has dropped from over 90% in 2017 to about 70% now. "Although the proportion of Little White Milk is declining, sales are still rising, and we are not worried about its later market development."
These words are seen as Kedi Dairy "drawing a pie" for distributors. **The real situation is that Little White Milk sales are not smooth, and in supermarkets in first-tier cities, the once-popular Little White Milk is almost nowhere to be seen.**
**Crisis of Regional Dairy Enterprises**
**Also seen as "drawing a pie" for distributors is the company development goal proposed by Kedi Dairy at the national distributor conference.** On the morning of June 30, Kedi Dairy held its 2019 national distributor conference in Shangqiu, with nearly 1,000 dairy distributors from across the country attending. The site also provided dozens of cars as prizes for distributors. Kedi Dairy ambitiously proposed to strive to make the dairy company the fifth largest in the country within 3 years and the third largest within 5 years.
In the view of industry insiders, Kedi Dairy's goal of becoming the third largest in the country within 5 years is just a pie in the sky. **"From the overall market perspective, there is no chance, because Kedi currently has no hope in terms of brand building or single products," Song Liang pointed out.**
Kedi Dairy has repeatedly proposed the goal of developing from a regional market to a national market and from a regional brand to a national brand. However, in the face of the downward squeeze from Yili, Mengniu, Guangming, and Junlebao on the national market, regional enterprises like Kedi Dairy, and even regional leading enterprises, are becoming increasingly difficult, let alone nationalization.
In recent years, large dairy enterprises have strengthened the distribution of products at market terminals, especially in third- and fourth-tier cities, squeezing many regional enterprises. In addition, Kedi Dairy also faces the shrinking terminal market sales caused by declining consumption trends, and imported milk further encroaching on the market share of domestic milk. The serious homogenization of products cannot be ignored either. Song Liang pointed out that **in recent years, many dairy enterprises have been launching high-end products, but these high-end products are not selling well, causing investments to go down the drain.**
"In the face of the accelerated squeeze on regional markets by national dairy enterprises, the survival of regional dairy enterprises is increasingly difficult. Without good funds, without good brands and products, and with average channel business capabilities, such enterprises have only two paths in the future: either bankruptcy or selling out," Song Liang pointed out. Kedi Dairy's next step may be asset sales, bankruptcy liquidation, or low-priced sale of shell resources.
**Acquisition of Kedi Quick-Frozen Suspected of Interest Transfer**
"**Kedi is not a very scientific and rational company from the inside out,** " an industry insider commented on Kedi Dairy. This company with a strong family style has major problems: "The major shareholder's family has basically hollowed out the listed company."
Since 2018, Kedi Dairy has been trying to acquire Kedi Quick-Frozen, but it has been stalled due to suspicions of interest transfer to the major shareholder. As early as May 2018, Kedi Dairy stated that it planned to purchase 100% of Kedi Quick-Frozen's equity through share issuance and cash payment. Six months later, Kedi Dairy said it decided to terminate the major asset restructuring due to significant changes in the external environment, especially the capital market environment.
In April this year, Kedi Dairy restarted the restructuring, drawing a letter of inquiry from the Shenzhen Stock Exchange. Facing a series of questions, **Kedi Dairy replied on the evening of May 13, saying that in view of the external environment changes again for both parties, the company believes that the conditions for restarting the acquisition of Kedi Quick-Frozen have been met.** A year later, Kedi Dairy restarted the restructuring of the related company Kedi Quick-Frozen. Unlike the previous restructuring plan, this restructuring canceled the purchase of 69.78% of Kedi Quick-Frozen's equity held by Kedi Group through partial cash payment, and canceled the issuance of shares to specific targets to raise supporting funds. At the same time, Zhongyuan Asset joined the transaction.
Both Kedi Quick-Frozen and Kedi Dairy's controlling shareholder is Kedi Group. According to Qichacha data, the major shareholder of Kedi Group is the family of Chairman and General Manager Zhang Qinghai, holding as much as 92%. **Therefore, Kedi Dairy's acquisition of Kedi Quick-Frozen is also suspected of interest transfer to the major shareholder.**
At the June 2019 national distributor conference, Kedi Dairy Chairman Zhang Qinghai began to talk extensively about product diversification: "One product is delivered, ten products are also delivered. Bundling these products together can reduce distribution costs and improve efficiency. It has long been a trend for distributors to directly operate terminals, and product diversification will soon become a trend." Regarding Kedi Dairy's proposed acquisition of Kedi Quick-Frozen through share issuance, Zhang Qinghai said, "Product diversification has innate diversification and acquired diversification. Innate diversification comes naturally, while acquired transformation is not easy. I believe this integration will be smooth and beneficial for the company to accelerate product diversification and extend Kedi's brand advantages."
However, this still cannot quell the suspicion of interest transfer in this acquisition. "Kedi Dairy's restructuring of this quick-frozen business is, strictly speaking, called asset transfer," Song Liang said. In his view, Kedi Dairy's restructuring is using the listed company's funds to acquire a related company, and this company is also a family-style company. "There is a sense of cashing out and transferring, and it is a high-premium acquisition, with obvious intentions."
Kedi Dairy's latest disclosure of the semi-annual report performance forecast shows that the company expects net profit attributable to shareholders of the listed company to be 82.9854 million to 87.5237 million yuan for January to June 2019, a year-on-year increase of 28% to 35%. Amid the thunder of semi-annual reports, Kedi Dairy's semi-annual report looks bright and beautiful, but this is all built on the arrears of milk payments to farmers.
Source: Yicai, China.com Finance


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