Meituan Long-Z and Guming Bet Over RMB 1 Billion on Adopt A Cow

This is an English adaptation of a FoodBud historical article originally published on July 8, 2022.

Adopt A Cow, the Chinese dairy company backed by Meituan Long-Z and tea chain Guming, had disclosed its prospectus and planned to list on China’s A-share market.

The IPO planned to issue no fewer than 40.4706 million new shares, representing at least 10% of post-issue share capital. Proceeds were earmarked mainly for the “Haiborige Smart Ranch Construction Project,” brand-building and marketing, information-system upgrades, and working capital.

Founded in 2014, Adopt A Cow develops, produces and sells dairy products and related goods, and also operates integrated ranching. Its products include UHT milk, yogurt, milk powder, cheese and raw milk.

Revenue grew from RMB 860 million in 2019 to RMB 1.68 billion in 2020 and RMB 2.56 billion in 2021. Net profit was RMB 110 million, RMB 150 million and RMB 140 million, respectively.

Meituan Long-Z and Guming invested more than RMB 1 billion

At the end of 2021, Meituan Long-Z and Guming invested in Adopt A Cow at RMB 27.63 per share.

Meituan Long-Z participated through four entities: Shenzhen Long-Z, Long-Z Fund, Long-Z M and Wuhu Chenyu. Together they subscribed for 28.6635 million shares, contributed RMB 790 million and held a combined 7.9% stake.

Guming held 2.46% after contributing RMB 246 million. Its shareholding vehicle was initially Zhejiang Guming, and the stake was later transferred to Guming Hong Kong.

Together, Meituan Long-Z and Guming invested more than RMB 1 billion before the planned listing, implying an entry valuation of around RMB 10 billion.

FoodBud’s view at the time was that this valuation looked demanding. Compared with listed dairy peers, and even using a 30x PE multiple, Adopt A Cow’s post-listing market capitalization might have been only in the RMB 4 billion-plus range, making a move toward RMB 10 billion uncertain.

Guming’s 2021 purchases from Adopt A Cow were only RMB 3.92 million

According to Adopt A Cow’s prospectus, related-party purchases involving Guming totaled only RMB 3.92 million in 2021, a very small amount relative to Guming’s system needs.

In 2021, Guming sold close to 700 million cups of beverages. Its dairy usage included about 8 million liters of Anchor whipping cream and more than 7 million bottles of fresh milk.

The prospectus showed raw milk priced at RMB 4,476.7 per ton in 2021. If Guming had bought raw milk directly from Adopt A Cow, RMB 3.92 million would equate to roughly 876 tons, or 1.75 million jin. By comparison, Guming used 14.458 million jin of fresh milk in 2020, and its 2021 usage was not far from that level.

In other words, Adopt A Cow’s products accounted for only a small share of Guming’s own supply system, and Adopt A Cow’s supply-chain support to Guming was limited at that stage.

For comparison, in the first three quarters of 2020, Guming purchased RMB 75.09 million from Jiahe Foods, according to Jiahe Foods’ prospectus.

The larger opportunity would be if Adopt A Cow later developed B2B products tailored to tea-drink and chain-beverage brands, such as substitutes for Anchor whipping cream. Guming used 13.006 million jin of Anchor whipping cream in 2020, and more than 16 million jin in 2021.

Did this point to a Guming Hong Kong IPO?

There had previously been market rumors that Guming was in talks with potential advisers for a Hong Kong IPO as early as 2022, seeking to raise US$300 million to US$500 million. Guming later denied those reports.

However, the transfer of Guming’s Adopt A Cow stake suggested that Guming had already prepared a Hong Kong entity. Zhejiang Guming also made an equity adjustment in May, with Guming Hong Kong holding 12.3% of Zhejiang Guming.

Among Chinese tea-drink chains, Mixue Bingcheng had already started listing tutoring in the prior year. In the mid-priced tea-drink segment, FoodBud suggested that Guming could be one of the earliest brands to move toward a listing.

Note: IPO, valuation, fundraising and forward-looking figures above are historical references from the July 8, 2022 source article.