Good News on Listing | Frost & Sullivan Assists Youren Muye Group in Successful Hong Kong Listing (9858.HK)

Youran Animal Husbandry Group (hereinafter referred to as 'Youran Animal Husbandry') successfully listed on June 18, 2021, with an issue of 715 million shares at a tender price of HK$6.98, raising approximately HK$4.991 billion. Frost & Sullivan (hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for Youran Animal Husbandry's listing and hereby extends warm congratulations on its successful listing.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication between the company and the Hong Kong Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the company in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

The dairy industry chain in China can usually be divided into two major sectors: upstream and downstream. The upstream dairy industry chain includes producers, mainly breeding companies, feed producers, and farms, which primarily serve and support dairy cow breeding operations. Raw milk is the final product delivered from the upstream dairy industry chain to the downstream. The main market participants in the downstream dairy industry chain are dairy product manufacturers, which further process raw milk into various dairy products and supply them to end consumers.

Compared with the dairy markets in developed countries, China's dairy market is still underdeveloped and has great growth potential. Unlike developed countries where a considerable proportion of dry dairy products (such as butter, cheese, and cream) are consumed, Chinese consumers mainly prefer liquid milk. The scale of China's dairy market (measured by total retail sales) increased from 3264 billion yuan in 2015 to 4903 billion yuan in 2020, with an annual compound growth rate of 8.5%.

Looking ahead, the market scale of dairy products in China will continue to show an upward trend, with an expected reach of 7385 billion yuan by 2025. From 2020 to 2025, the compound annual growth rate is expected to be 8.5%.

The downstream industrial chain of China's dairy industry is highly concentrated. In 2020, there were hundreds of dairy manufacturers, and the top five dairy manufacturers accounted for 73.5% of the total retail sales value of dairy products. The leading enterprises in China's dairy downstream industrial chain are large in scale and growing rapidly, requiring suppliers with large scale and extensive distribution to meet their high demand.

The demand in the downstream dairy industry chain has driven the rapid development of the upstream industry, especially bringing significant business opportunities to large industry participants (including breeding companies, feed producers, and ranches) that have a full industrial chain layout. As a result, competition in the upstream dairy industry chain has become increasingly fierce, and the advantages of leading enterprises are gradually becoming more prominent.

The raw milk volume required for China's dairy consumption is mainly led by leading downstream dairy manufacturers. Especially with the continuous increase in consumption of high-end liquid milk downstream, the demand for high-end raw milk and its supply have entered a stage of rapid growth. The market scale of raw milk in China (measured by supply) decreased from 3.18 million tons in 2015 to 3.04 million tons in 2017, and gradually recovered since 2018, increasing to 3.44 million tons in 2020, with an annual compound growth rate of 1.6%.

Due to the increase in milk cow per-unit production and the number of dairy cows, raw milk supply is expected to grow at a compound annual rate of 3.8%, from 3.44 billion tons in 2020 to 4.15 billion tons in 2025.

In the raw milk market in 2020, Youran Animal Husbandry ranked first in terms of dairy cow inventory, raw milk production, specialty fresh milk output, and the sales value of raw milk.

Ruminant concentrate feed contains a variety of different individual components, types, and forms, such as premixes, concentrates, and concentrate supplements. Concentrate feed provides ruminants with the necessary additional energy and protein to support modern production levels.

The market scale of concentrate feed for ruminants in China (in terms of output) increased from 880 million tons in 2015 to 1320 million tons in 2020, with a compound annual growth rate of 8.3%.

The expansion of ruminant livestock populations in China, especially the increasing scale of ruminant breeding, has also driven up consumption and demand for concentrated feed. This has promoted the growth of the ruminant concentrated feed market, which is expected to further increase to 1.76 million tons by 2025, with a compound annual growth rate of 6.0% from 2020 to 2025.

In the 2020 ruminant concentrate feed market, Youran Agriculture ranked first in terms of both ruminant concentrate feed sales volume and sales value.

Frozen semen is a breeding product that involves the cryopreservation of sperm by adding a cryoprotectant, followed by artificial insemination for reproduction. Dairy cow frozen semen is widely used by farms to produce calves.

In 2016, the Chinese government abolished subsidies for dairy cattle breeds, causing the sales of dairy cow semen to plummet from 22.1 million doses in 2014 to 7.5 million doses in 2017. Nevertheless, with the recovery of the raw milk supply market in China and the expansion of herd size, the dairy cow semen market has shown an upward trend.

To effectively expand the livestock herd size, sex control semen for dairy cows is expected to be welcomed by Chinese farms. The sales volume of sex control semen for dairy cows is projected to increase from 1 million doses in 2019 to 1.8 million doses in 2024, with a compound annual growth rate of 12.5% from 2019 to 2024.

The dairy cow semen market in China is relatively concentrated. In 2019, according to the sales volume of dairy cow semen, the sales value of dairy cow semen, and the sales price of sex control semen for dairy cows, Saikexing, a company acquired by Youran Animal Husbandry, ranked first.