On July 7, the Chinese leading powdered milk brand Feihou saw its market value evaporate by HK$8.8 billion due to its announcement on July 4 (Friday) estimating a decrease of over 700 million Yuan in net profit for the first half of the year compared to the same period last year.
In the announcement titled “Insider Information (I) Profit Warning (II) Share Repurchase Plan and (III) Expected Dividend,” Feihou stated that it expects a maximum revenue of 9.3 billion Yuan in the first six months of this year, with a net profit of 1 to 1.2 billion Yuan compared to the 1.9 billion Yuan in the same period last year, marking a decrease of over 700 million Yuan, a drop of around 40%.
On July 7, Feihou’s stock opened sharply lower on the Hong Kong stock market, closing down by over 17% and its market value falling to HK$42.8 billion, evaporating HK$8.8 billion in just one day.
The announcement explained the decrease in expected net profit was mainly due to providing birth subsidies to consumers, reducing infant formula milk channel inventory, reduced government subsidies, and an impairment provision for full-fat milk powder products, all resulting in a decrease in company revenue.
Feihou’s Chairman, Leng Youbin, stated that providing birth subsidies significantly reduced profits. According to a report by the 21st Century Business Review on July 7, starting from April this year, Feihou introduced a 1.2 billion market subsidy targeted at qualifying pregnant families, distributing subsidy coupons of no less than ¥1500 to be used for free milk product redemption. Although this measure enhanced Feihou’s social image and product visibility, it also impacted their own income.
Following Feihou’s public announcement of birth subsidies, other brands in the milk powder industry also began to follow suit, setting off a subsidy war. Among them, Yili and Junlebao’s subsidies amounted to 1.6 billion Yuan. However, industry insiders noted that “while everyone offers subsidies, the attractiveness cancels each other out, essentially turning it into a price war.” Moreover, the impact of birth subsidies on performance may exceed the management’s expectations.
Some perspectives believe that objectively, this move will squeeze the space for mid-sized brands and expand the market share of leading companies like Feihou.
Public data shows that Feihou, established in 1962, started from Qiqihar in Heilongjiang Province and is one of the earliest powdered milk companies in China. As of 2023, Feihou’s market share had reached 21.5%, achieving the top market share in China for five consecutive years.
As of 14:20:00 on July 8 Beijing time, Feihou’s stock price was reported at HK$XXX per share, dropping by 3.38%, with a total market value of HK$41.437 billion.