Chen Xiaojing, the leading ready-to-drink soy milk company Vitasoy International, is emerging from the sluggish performance in the Chinese mainland market. According to the profit alert for fiscal year 2024 disclosed recently, operating profit in the Chinese mainland market surged, driving overall profit growth. However, the 83-year-old chairman, Lo Yau Lai, still has concerns. Although he promoted his daughter, Lo Ki Mei, to vice chairman last year, whether she can smoothly take over remains to be tested over time.

Recapturing Lost Ground

Vitasoy International (00345.HK), the leading ready-to-drink soy milk company, is gradually recapturing lost ground in the Chinese mainland. After the market close on May 17, the company disclosed a profit alert stating that for fiscal year 2024 (ending March 31, 2024), operating profit from mainland China business increased significantly, driving overall profit growth. Profit attributable to equity holders is expected to be between HK$106 million and HK$126 million, an increase of approximately 132% to 176% compared to the previous fiscal year. This was attributed to improved sales execution in the mainland market, effective management of trade promotions and operating expenses, enhanced business efficiency, and increased overall revenue.

In July 2021, Vitasoy was embroiled in a major public incident, causing a severe setback in the mainland market, with products removed from shelves and brand image damaged, hitting a low point. In fiscal year 2022 (ending March 31, 2022), mainland revenue plummeted by 23% to HK$3.838 billion, with an operating loss of HK$340 million. In that fiscal year, the company recorded a loss attributable to equity holders of HK$159 million, its first loss since listing 26 years ago. At that time, some analysts believed it would take at least three years for the company to fully recover in the mainland market.

In the past few years, under the company's ostrich strategy, it has been difficult to shake off the "stain" label, and at the same time, it has felt somewhat fatigued in the complex and fiercely competitive FMCG market. The company has racked its brains over products, shifting from Tetra Pak to larger formats, and deepening its focus on more segmented products in the soy milk and lemon tea categories, but it has not yet returned to its peak. In fiscal year 2021, mainland revenue was HK$5.008 billion, accounting for 66.6% of total revenue, the highest in history.

Frequent Changes in Mainland Leadership

Vitasoy International rose in Hong Kong and entered the mainland in the 1990s. Now, the mainland market is the company's largest revenue source. In this market, which is crucial to the company, there have been four changes of top leadership in seven years. Frequent changes of senior executives in an important market are not a good sign, especially given the intense competition in the soy milk market. Soy milk powder giant VV Group has entered ready-to-drink soy milk, and new forces like Doubendou are aggressively expanding, gradually threatening Vitasoy's market position.

The changes in Vitasoy International's mainland leadership began in October 2017. At that time, Yuan Jie, who had been with the company for 13 years as General Manager (CEO) of China, left. Yuan Jie came from a sales background and drove Vitasoy's business from South China to the whole country, making the mainland the company's fastest-growing and largest market. Half a year before his departure, there was a personnel earthquake in the China region, with eight veteran executives, including National Sales Director Lin Ke and South China Sales Director Chen Yuanqing, leaving successively. After Yuan Jie, the company's CEO Roberto Bottini briefly served as mainland president for four months. Then Zhong Tingyi, who had held senior positions at Johnson & Johnson and Danone, was appointed as the new CEO of China, with the aim of continuing to drive growth in the mainland market. Zhong faced severe challenges, as the mainland's revenue share grew, competition intensified, and growth slowed. Moreover, during his short tenure, there were also three years of special circumstances. In July 2021, Vitasoy International was at the center of a public opinion storm, with products removed from shelves across different channels in the mainland and brand image severely damaged, leading Zhong to leave.

At the end of that year, Su Qiang, who had held senior positions at PepsiCo, Hsu Fu Chi, and Mars, was appointed CEO of China. Tasked with a critical mission, he made significant improvements in brand image rebuilding, product innovation, and channel repair. In terms of products, Su launched oat milk and lemon tea new products during his tenure and focused on the sugar-free tea track. Under various measures, the company's operations improved significantly. In fiscal year 2023, the company achieved revenue of HK$6.341 billion, a year-on-year decrease of 2%, and profit attributable to equity holders of HK$46 million, turning around from losses. Among this, the mainland market achieved revenue of HK$3.509 billion, a year-on-year decrease of 9%, and operating profit of HK$46 million. In the interim period of fiscal year 2024 (ending September 2023), the company's revenue was HK$3.391 billion and profit attributable to equity holders was HK$163 million, with year-on-year changes of -7% and +15%, respectively. Among this, mainland revenue was HK$1.962 billion and operating profit was HK$190 million, with year-on-year changes of -11% and +36%, respectively.

In April this year, Su Qiang submitted his resignation, and Vitasoy International found another FMCG veteran, Wang Dong, to serve as CEO of mainland China. Wang Dong was previously President of Tupperware China, transitioning from selling household products to selling soy milk.

Cautious Succession

As a Hong Kong family business, Vitasoy International's family succession has been both lengthy and strict and cautious. In 1940, Lo Kwee Seong founded Vitasoy International, and this soy milk became an important drink for low-income groups as a substitute for milk, becoming popular throughout Hong Kong. After a difficult start-up period, the soy milk business gradually improved. On the issue of succession, Lo Kwee Seong kept testing his children. It was not until 1967 that his sixth son, Lo Yau Lai, came into his view. After 28 years, Lo Yau Lai took over the company from his father in 1995 and officially took charge of this soy milk company. Under Lo Yau Lai, Vitasoy not only went international but, more importantly, seized the opportunity to grow in the Chinese mainland.

Today, just like his father back then, the major issue of corporate succession is also on Lo Yau Lai's agenda. In 2023, he was already 82 years old. Who will become the third-generation heir? This has become a focus of attention from all sectors. On November 22 last year, non-executive director Lo Ki Mei was appointed as Vice Chairman of the Board. The 48-year-old Lo Ki Mei is the daughter of Lo Yau Lai. At that time, the media asked Lo Yau Lai whether he had decided to hand over the baton and retire. He said that succession is gradual and that within the next two to three years, he would "gradually pass on my insights and views to Lo Ki Mei." Lo Ki Mei has been a non-executive director since 2017, holds degrees in business administration and science from MIT and Cornell University, and has work experience at a global asset management company.

Lo Yau Lai is not willing to completely let go for now, possibly due to the strictness and caution typical of Hong Kong family business succession, and also because the mainland market faces a complex competitive environment and has not yet fully recovered to high growth. In the ready-to-drink soy milk market, Vitasoy has held the top position for many years with a market share of about 40%. However, with the entry of Yili, Nestlé, Mengniu, and emerging brands, the industry landscape is undergoing drastic changes, with Doubendou's market share already reaching 20.7%. With the biggest "heart disease" not yet resolved, Lo Yau Lai remains uneasy.

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