---
title: "Lulu, Listed for 21 Years, Cools Down: Trapped in Counterfeit Crisis, Reduced to a Capital Tool?"
description: "Chengde Lulu is now facing internal and external troubles. After the change of actual controller, can it bring substantial changes to the company? In the plant protein beverage sector, there was a saying: 'South has Coconut Tree, North has Lulu.' Competition in this field is intensifying, with brands like Black Bull, Six Walnuts, and Daliyuan entering the market, along with interference from counterfeit products. A-share's famous cash cow, Chengde Lulu, seems to have reached a turning point in its 21st year of listing. As of the close on March 30, its market value was 8.895 billion yuan..."
author: "谢伟"
publisher: "New Distribution"
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published: "2018-04-10"
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# Lulu, Listed for 21 Years, Cools Down: Trapped in Counterfeit Crisis, Reduced to a Capital Tool?

> Chengde Lulu is now facing internal and external troubles. After the change of actual controller, can it bring substantial changes to the company? In the plant protein beverage sector, there was a saying: 'South has Coconut Tree, North has Lulu.' Competition in this field is intensifying, with brands like Black Bull, Six Walnuts, and Daliyuan entering the market, along with interference from counterfeit products. A-share's famous cash cow, Chengde Lulu, seems to have reached a turning point in its 21st year of listing. As of the close on March 30, its market value was 8.895 billion yuan...

****Today's Chengde Lulu is facing internal and external troubles. After the change of actual controller, can it bring substantial changes to the company?
In the plant protein beverage sector, there was a saying: 'South has Coconut Tree, North has Lulu.' Currently, competition in this field is intensifying, with brands like Black Bull, Six Walnuts, and Daliyuan entering the market, along with interference from counterfeit products.
A-share's famous cash cow, Chengde Lulu, seems to have reached a turning point in its 21st year of listing. As of the close on March 30, its market value was **8.895 billion yuan**.
**Wanxiang Group's 'Son Inherits Father's Business'**
Lu Weiding is the only son of the renowned entrepreneur Lu Guanqiu, who was hailed as the 'godfather' of Chinese private enterprises and a first-generation entrepreneur after the reform and opening-up. Lu Guanqiu passed away in October 2017, but the 'Wanxiang Group' he founded has a vast asset map in China and is well-known.
Lu Weiding has now taken over his father's banner. Through the board of directors' election, it was unanimously approved that actual controller Lu Weiding would serve as the legal representative of Wanxiang Group Company, holding the positions of Chairman and CEO. The three flagship platforms of the Wanxiang Group, namely Wanxiang Group Company, Wanxiang Holdings, and Wanxiang Agriculture Group, have all been transferred to Lu Weiding's name.
Chengde Lulu is headquartered in Chengde, Hebei. Its predecessor was the Chengde Canned Food Factory, established in 1950, and the company was listed on the Shenzhen Stock Exchange in November 1997.
The connection between Chengde Lulu and Wanxiang dates back to 2003, when Wanxiang first acquired 67.405 million shares of Chengde Lulu from Lulu Group at 4 yuan per share, and then transferred them to Wanxiang Agriculture at 2.93 yuan per share in 2004. This transaction was also questioned as '**left hand to right hand**', suggesting that Wanxiang's involvement in Lulu might not be just an ordinary investment.
Subsequently, after the state-owned enterprise reform in 2006, Wanxiang Agriculture repurchased and canceled 121 million shares of Chengde Lulu held by Lulu Group at 2.64 yuan per share, with a total repurchase amount of approximately 319 million yuan.
After several changes, **Wanxiang Agriculture ultimately became the largest shareholder of Chengde Lulu with a 42.55% stake. The actual controller of Wanxiang Agriculture is Lu Guanqiu, who holds 90% of the group's equity, while Lu Weiding only holds 10%**.
The old brand Lulu once hoped to return to its peak with the help of Lu Yongming, a member of the Lu family, but many problems surfaced, with its own development 'stagnating' or even declining in performance, and it was considered to have long been contributing cash to Wanxiang. This means that Lu Weiding may face a brand new race.
**Product Sales Continue to Decline: Almond Milk Encounters Bottleneck**
Wanxiang Agriculture began controlling Chengde Lulu Group in 2006. The annual report for that year showed that its main product 'almond milk' had an annual production capacity of over 300,000 tons, a market share of up to 90%, and a gross margin of 32.59%.
But more than a decade later, although Chengde Lulu is still the leading player in plant protein beverages, its performance can no longer be compared to that of a decade ago. According to the **2017 financial report, the annual sales volume of almond milk was 241,600 tons, in a continuous decline, while the inventory was approximately 36,300 tons, up 20.31% from 2016**.
Sales declined, revenue saw negative growth, and profits also began to decrease from 2016. The financial report shows that Chengde Lulu's revenue was 2.112 billion yuan, down 16.22% year-on-year; net profit attributable to shareholders was 418 million yuan, down 8.3% year-on-year. In addition, inventory turnover also showed adverse changes, with the company's year-end inventory balance increasing from 166 million yuan in 2015 to 258 million yuan in 2017, and inventory turnover declining from 8.21 times in 2015 to 4.53 times in 2017.
Declining sales and rising inventory indicate lower operational efficiency, and the capital market also reacted. Since the beginning of 2017, Chengde Lulu's stock price has fallen by 13%, while during the same period, the Shenzhen Component Index rose by 7.89% and the Shanghai Composite Index rose by 5.71%.
Data shows that the plant protein beverage market had a compound growth rate of 24.5% from 2007 to 2016.
But by 2017, not only Chengde Lulu but the entire plant protein beverage market's growth rate had fallen below double digits. Additionally, Chengde Lulu's product portfolio is relatively single, heavily relying on almond milk, making it less resilient to risks. Once the industry shrinks, Chengde Lulu is the first to be affected. Although the company is also developing other products, its capabilities have not kept up, and the results have not been satisfactory.
**The 'Cash Cow' Getting Thinner**
Chengde Lulu is known as a recognized 'cash cow' in A-shares because since its listing in 1997, it has accumulated net profits of 3.642 billion yuan, distributed cash dividends of 1.854 billion yuan, with a total of 16 dividend distributions and a payout ratio as high as 51%. Such a high dividend payout is beyond the reach of most companies.
Data shows that before 2014, Chengde Lulu's operating net cash flow consistently exceeded net profit. Only in 2014 did operating net cash flow fall below net profit, due to a significant decline in advance receipts that year. Subsequently, as advance receipts and accounts payable rebounded, operating net cash flow surged in 2015 and 2016, **reaching a peak of 831 million yuan in 2016**.
But in **2017, the company's advance receipts were 392 million yuan, a decrease of 248 million yuan from the previous year; accounts payable balance was 197 million yuan, a decrease of 85 million yuan from the previous year. Both declined significantly. With net profit of 418 million yuan, net cash flow from operating activities was only 149 million yuan**.
From various financial data, it is clear that Chengde Lulu, the 'cash cow' well-known to investors, is **gradually getting thinner**.
Facing such difficulties, Chengde Lulu stated, 'Small enterprises maintain the status quo, large enterprises see declining operations, traditional products have a sluggish market, and new products have yet to show results.'
Moreover, Chengde Lulu's **competitors include not only major brands but also numerous 'counterfeit manufacturers'**. Just recently, on the 3.15 Gala, reports on counterfeit beverages brought the seemingly forgotten 'Chengde Almond Milk' back into the spotlight.
In Zaozhuang City, Shandong Province, multiple enterprises mass-produce counterfeit almond milk, walnut milk, walnut and peanut beverages, etc. Some even imitate the packaging design, including the same pose in the spokesperson's photo, only changing the name from 'Xu Qing' to 'Xu Qian'. These products are generally sold to third- and fourth-tier cities and rural markets. As early as 2009, Chengde Group stated that it spends no less than 300 days a year on anti-counterfeiting efforts.
**Low Capital Utilization: 1.7 Billion Funds with Annualized Return of Only 1.1%?**
Although Chengde Lulu failed to deliver impressive results in 2017, it is undeniable that due to long-term cash accumulation in history, even with high dividend payouts, the company still has a large amount of funds on its books.
**At the end of 2017, the company held monetary funds of 1.906 billion yuan, accounting for as much as 67.78% of total assets. Most of this money was placed in a related company - Wanxiang Finance Co., Ltd.**
Although it is common for listed companies in the A-share market to deposit funds in financial companies under the actual controller, it inevitably raises questions: Is there a related-party transaction? How is the interest on deposits calculated?
According to the company's financial business summary table, as of the end of 2017, the cumulative amount of fund transactions between Chengde Lulu and Wanxiang Finance was approximately 8.624 billion yuan, with both beginning and ending balances exceeding 1.7 billion yuan. In 2017, the company received interest of approximately 18.3885 million yuan from financial business conducted through Wanxiang Finance Co., Ltd.
What does this figure represent? Assuming the over 1.7 billion funds were rolled over in the financial company, with an average daily balance of 1.7 billion yuan, and based on the interest of 18.3885 million yuan, the annualized return is only about 1.1%.
This is far lower than the average return of about 4.5% for wealth management products of the four major banks. Of course, it cannot be calculated so simply, as more information cannot be obtained from public data, and the true return rate cannot be calculated.
This phenomenon exists not only in Chengde Lulu but in most companies. Minority shareholders find it difficult to know the specific annualized return rate and to judge whether the pricing of funds transferred to related financial companies is reasonable.
The financial company established by the group is actually a licensed non-bank financial institution. Currently, many large consortia, including state-owned enterprises and family businesses, have set up financial companies. These consortia also hold stakes in or control one or even multiple listed companies. As a result, it is difficult to judge the reasonableness of fund pricing and whether information disclosure is sufficient. This issue is worth pondering.
**Conclusion: Reform Has Not Shown Results, Where Is the Way Forward?**
Facing the current predicament, Chengde Lulu has also implemented reforms, with the principle of '**subtraction first, then addition**'. Significant changes have also occurred within the company. In 2016, after launching new products such as walnut milk, nut walnut, and peanut milk, Chengde Lulu also introduced Xiaolulu and Lulu Selection series products.
In 2017, Chengde Lulu adjusted its organizational structure, optimizing the original 14 departments into 7 departments plus 1 marketing center, emphasizing the core position of the marketing center.
But **from the 2017 financial report, these adjustments can be said to have had little effect, and Chengde Lulu did not reverse the decline in performance**.
While operating revenue declined, the company's administrative expenses increased by 2.2% year-on-year, and the decline in financial expenses and selling expenses was far smaller than the decline in operating revenue.
In 2017, the company listed total remuneration for key management personnel of 2.286 million yuan, with 8 recipients. Compared with 2016, the number of personnel decreased by about 30%, and total remuneration decreased by about 60%. During this period, several Lulu executives announced their resignations.
After sailing smoothly for over 40 years, the Wanxiang Group's commercial giant has entered a new era. Where will Chengde Lulu head under the leadership of the young master Lu Weiding? Today's Chengde Lulu is facing internal and external troubles. After the change of actual controller, can it bring substantial changes to the company? This is a question of concern to many investors.
Source: Pintu Business Review (ID: pintu360)
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