Posted by Philip ( Random Walk Theorist) > 2020-04-29 20:09 | Report Abuse

That is not to say Ausnutria is not the company to invest in, as their margins and growth are equally spectacular and not to be scoffed. But I believe as one company imports almost exclusively all its baby formula from netherlands and australia and another produces it locally, one will definitely make far higher margins than the other.

Plus the locally produced one is selling the high end series at absurd prices (and huge growth rates) and the marketing tag of "better for chinese babies", that just killed it for me. How do you compete foreign brands with that?

Posted by Sslee > 2020-04-29 20:50 | Report Abuse

Haha,
Now Philip learn how much growth rate 30% revenue and 28% NP compare to his QL low single digit growth rate.

Posted by Sslee > 2020-04-29 21:10 | Report Abuse

Actually NP growth from 2.242b to 3.934b is 75.5% growth.

Posted by Choivo Capital > 2020-04-29 22:32 | Report Abuse

https://www.gmtresearch.com/en/research/china-feihe-fake-or-fab/

Have you read the GMT short report?

Posted by Philip ( Random Walk Theorist) > 2020-04-29 22:53 | Report Abuse

Yes I already posted it up at the bottom, regarding their complaints on fraud and fake money because they have not given back any dividends in the last 5 years. I thought it was refuted when management has guaranteed 30% of profit payout as dividends to shareholders. If and when the dividend payout is not given out, then we shall see.

As for market share and sales claims , I believe Nielsen 3rd party and very reliable market reports has already refuted this fact.

Posted by Philip ( Random Walk Theorist) > 2020-04-29 22:59 | Report Abuse

Sslee, you never give up do you? What makes you think QL growth rate is going to be low? Ql is still one of my major holdings.

FYI, please give up on trying to bring down QL. It will still outperform INSAS. It will still return shareholder value far above what INSAS can it has ever done. And the consistent growth of QL is something that I appreciate and look forward to far more than the stocks that you peddle.

QL is a far safer, more consistent, more stable company with guaranteed growth over many many years compared to your INSAS.

Please give up commenting on my page, if you have nothing worthwhile to comment.

Full stop.

As you still have much to learn about investing, I recommend you talk less and read more.

>>>>>>>

Sslee Haha,
Now Philip learn how much growth rate 30% revenue and 28% NP compare to his QL low single digit growth rate.
29/04/2020 8:50 PM

Posted by Philip ( Random Walk Theorist) > 2020-04-29 23:07 | Report Abuse

In any case I find the report very frivolous. Why is a stock based just because they did not pay dividends for 5 years? Berkshire Hathaway hasn't paid a dividend ever.

Only cheap investors keep begging management to give out dividend without thinking about the big picture in terms of the business.

I believe if the company is able to turn 1 dollar of retained earnings into many more dollars of growth than I can by giving out a dividend, then I believe the company should not give out a dividend and instead grow the business and capture market share.

If in 5 years just by not giving out a dividend feihe is able to grow to 13% of the market, then I believe it is the right thing to do.

>>>>>>>>>>

https://www.gmtresearch.com/en/research/china-feihe-fake-or-fab/

Have you read the GMT short report?
29/04/2020 10:32 PM

Posted by Sslee > 2020-04-30 08:34 | Report Abuse

Good morning Philip,
https://www1.hkexnews.hk/listedco/listconews/sehk/2019/1030/2019103000013.pdf

DIVIDEND
We did not pay or declare any dividend during the Track Record Period. On October 14, 2019, the Company declared a special dividend of HK$3 billion out of its historical retained profit to its shareholders. Based on the proposed funding and special dividend distribution plans, the distribution of the special dividend shall not have any material tax implication to us. We intend to distribute to our Shareholders no less than 30% of our net profit for each financial year going forward after Listing, subject to our future investment plans. Our Board may declare dividends in the future after taking into account our results of operations, financial condition, cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment as well as the amount of dividends will be subject to our constitutional documents and the Companies Law.

HISTORICAL NON-COMPLIANCES
Administrative Sanctions on Feihe Zhenlai.
Social insurance and housing provident fund contributions.
Inter-company loans.

So Philip must hold the BOD accountability to “We intend to distribute to our Shareholders no less than 30% of our net profit for each financial year going forward after Listing”

By the way do you think a business model that did not pay a fair price to their material suppliers and then raping their customers to reward themselves, their distributors and retailers is a win-win business model.

I would be surprised later on like Xingquan; the BOD will blame some imaginary fuck up with the formulation causing the recall and destroys of 6 months imagination production batches and massive write off of receivable and stocks.

Posted by teoct > 2020-04-30 10:27 | Report Abuse

I am humbled Philip. This is a thorough analysis of the milk industry in such a short time.

Am very happy for you and hope that this investment will be most fruitful to you.

Happy investing, stay safe especially with the impending relaxation, keep to at least 1.5m (in-fact 2m is better) physical distancing.

Posted by qqq33333333 > 2020-04-30 10:51 | Report Abuse

glove rally still got legs.

Posted by qqq33333333 > 2020-04-30 10:53 | Report Abuse

comfort $ 1 to $ 1.40 is still the best ....beating every other choice............

Posted by Choivo Capital > 2020-04-30 10:54 | Report Abuse

Fair point. Very interesting call.

Thanks!

====
Philip ( buy what you understand) Yes I already posted it up at the bottom, regarding their complaints on fraud and fake money because they have not given back any dividends in the last 5 years. I thought it was refuted when management has guaranteed 30% of profit payout as dividends to shareholders. If and when the dividend payout is not given out, then we shall see.

As for market share and sales claims , I believe Nielsen 3rd party and very reliable market reports has already refuted this fact.
29/04/2020 10:53 PM

Posted by Philip ( buy what you understand) > 2020-04-30 14:33 | Report Abuse

There are cheaper options in the markets, why do Chinese still choose to buy astrobaby in large growing numbers? The fact is PRC Chinese are becoming much wealthier, and for them children are the most important future asset in their old days. Willing buyer willing seller, and no one is complaining about there business model but you.

I'm very interested however, what is a fair price for material suppliers to you?

>>>>>>>>>>>

By the way do you think a business model that did not pay a fair price to their material suppliers and then raping their customers to reward themselves, their distributors and retailers is a win-win business model.

Posted by Alex™ > 2020-04-30 14:35 | Report Abuse

tech is to silicon valley as china to stock fraud. I'll shy away from this.

Posted by Philip ( buy what you understand) > 2020-04-30 14:48 | Report Abuse

Ok. But I will recommend you to open up your mind and look at businesses instead of locality. In every country ( USA and Malaysia included), there are always bad and good companies. However

Munger invested in BYD.
Warren buffet invested in Petrochina.
Alibaba is one of the world's biggest companies.
Jim Rogers had this to say about China.

https://news.cgtn.com/news/2020-03-27/Investor-Jim-Rogers-I-would-rather-buy-from-China-than-the-U-S--Pb3cWwJ6xi/index.html


The idea about investing is to look at critical areas that are undervalued. Stock fraud carry many alerts and red marks. But to assume that all stocks in China is a fraud is to lock yourself out of a huge fast growing market that will recover out of covid-19 faster than any other major country.

Posted by Philip ( buy what you understand) > 2020-04-30 15:23 | Report Abuse

One thing that I can pretty much guarantee is that there will not be a reduction in the consumption of baby formula over this covid-19 period.

Posted by David > 2020-05-01 08:56 | Report Abuse

Dear philip, thank you for your generous sharing. I had reservations about the infant formula industry in china but changed my mind after reading your article.

I was intrigued by their extremely high gross profit margins. The purchase of fresh milk accounts for 85% of their cost of goods sold. They receive their milk supplies from YST group, who also supplies to Mengniu. From my checks on ecommerce websites, the retail price of Feihe and Mengniu milk are comparable. Yet Mengniu only achieves a 37% GP margin. Perhaps Feihe is able to procure fresh milk at much cheaper rate (sslee might be right about supply chain bullying)

Posted by David > 2020-05-01 08:59 | Report Abuse

Feihe seems to be very popular among the parents judging from the number of reviews on ecommerce platforms vs competitors. I believe there’s some moat in the business and their growth will come at the expense of international brands, looking at how the younger generation have shown an increasing domestic brand bias and some degree of “nationalism”. Their expansion in Canada would be another growth trigger.

Thank you once again. I like the business and have decided to invest in Feihe as well.

Posted by Philip ( buy what you understand) > 2020-05-01 09:34 | Report Abuse

if you look under other dairy milk products RMB210 million which includes packaged and processed butter, fresh milk packed etc their GP margin is also around 36%, so there is no supply chain bullying.

The difference is in the high in milk formula powder series. Those have very high margins (similar to Apple iphone) due mostly to brand recognition, market perception of quality and marketing efforts, and high R&D to produce quality results. As it is very hard to quantify the eficacy of milk powder (so just take my word for it and buy the most expensive formula milk available in the market for your baby), long term branding is very very important.

Contrast that to our local products, dutch lady. The price sold is very high compared to other local brands (in sabah we have SID and ecoyap), if the price was the same or even slightly more expensive, when it comes to your baby, would you feed them ecoyap, SID or Nestle? Why? Did you look at the label and compare what actually is beneficial for your kids when you bought the milk powder formula? Or did you listen to you wife and just bought the more expensive brand, for the added reassurance and quality reputation?

That is why feihe has 70% gross margins. Because they sell every thing out at 70% margins, so why sell it cheap?

And personally, i think the milk formula industry is funny that way. A reduction in price does not equate to an increase in sales. In PRC most individuals are more afraid of fake products and labels than even malaysians due to the prevalence and lack of quality control in the past (not so today though). My experience of PRC individuals, if something is expensive, then the general belief is it must be good.

Even when they come to Malaysia, my PRC friends always look for the most expensive durian like musang king, instead of enjoying other not so famous ones, which is cheaper but not necessarily worse.

FYI I stand by my claim that red prawn and XO durians are BETTER than most varieties musang king. At half the price, I love it even more sometimes.

>>>>>>>
Yet Mengniu only achieves a 37% GP margin. Perhaps Feihe is able to procure fresh milk at much cheaper rate (sslee might be right about supply chain bullying)

Posted by David > 2020-05-01 09:54 | Report Abuse

mengniu milk seems quite pricey as well. Feihe astrobaby (step 1) sells at ￥46/100g, mengniu organic milk (step1) priced at ￥49/100g. but yes, parents of newborns, particularly if they have their first child tend to be less experienced and buy the more expensive formula. I believe the consumer psychology in china would be similar. many mothers who are unable to breastfeed for the recommended period would just buy the "best" (ie the most expensive) infant formula on the shelf. Feihe would benefit from the increased sales of high end formula.

Posted by Philip ( buy what you understand) > 2020-05-01 10:08 | Report Abuse

With tesco selling nestle NAN at 113.99 per 800g (the price my son bought for my granddaughter), you can understand why I am so bullish on this. My daughter in law stopped breastfeeding almost as soon as she started going back to the law firm.


>>>>>>>>>

https://eshop.tesco.com.my/groceries/en-GB/products/7004958942

Posted by Philip ( buy what you understand) > 2020-05-01 10:11 | Report Abuse

But in any case I don't make the prices. I have also gone through extensive reading of YST farms annual reports and their production and selling prices to plot the growth rate to feihe.

The prices that YST is selling at is quite low, but it is on the higher side compared to the market sales prices of the dairy farmers in china.

So, pricing power is not there due to market competition. For Feihe, it is almost the opposite way around.

Since I can't force feihe to pay higher prices for milk or sell lower price for astrobaby, I will just follow them as a minority shareholder and participate in the long term growth of the company.

Posted by David > 2020-05-08 08:49 | Report Abuse

hi philip, the luckin coffee accounting scandal makes me a little worried about feihe. starting to be wary China companies with high profitability but unable to payout dividends. what do you think?

Posted by Philip ( buy what you understand) > 2020-05-08 09:05 | Report Abuse

Here is how I look at luckin. Firstly, they were a very new chain in a world dominated by Starbucks and friends. There was no r&d or differentiating capacity about them. So a few red flags that make me instinctively worried would be:

1. Impossible growth speeds with a clear differentiator.
2. It was founded in 2017.
3. The coffee wasnt even that good. I tried it in Guangzhou during my last trade Fair trip before to see what the fuss was about.
4. They were giving out free coffee everywhere. Why give free if you can sell it?
5. It was revenue growth all the way without even looking at profitability.

https://www.fastcompany.com/90487535/embattled-luckin-coffee-sees-wild-surge-as-customers-scramble-to-cash-in-on-free-drink-vouchers

When it was founded in 2017, it was already losing a lot of money. In 2018 revenue was up but they were still burning 400 million in cash. In 2019, the jig was up.

On the other hand, feihe was founded in 1964. The sales and production can be easily corroborated by the income tax payments, production figures from it's suppliers, and industry journals of market reach.

In terms of profits, as you say it is a red flag for me also. But as they have guided towards paying 30% of their profits as dividends I am content to wait and see.

But more importantly the competition level and requirements are in a entirely different level compared to coffee.

Anyone can make coffee, even my son.

How many people can make baby formula?


>>>>>>>>

Founded in 2017, Luckin has opened stores at a breakneck pace. Even on its now discredited numbers, Luckin was heavily lossmaking. It was primarily valued on revenue growth and its ability to show a path to profitability.

Posted by Philip ( buy what you understand) > 2020-05-08 09:33 | Report Abuse

Luckin was never profitable.

/>>>>>>>>>

China companies with high profitability

Posted by qqq33333333 > 2020-05-08 10:04 | Report Abuse

if u are not Philip or Philip standard , don't play play in China stocks.

China stocks like pretty women who are very cunning .....not familiar don't do.

So many early China bulls, I wonder what happened to them....people like Jim Rogers.....


China is a pretty woman.........


..On China perspective.............In 1980, China economy one twentyth of USA, by 2030 China economy twice USA ( by purchasing power) and forms 30% of world economy, USA 15% and EU13%...............In 1820, China economy was 30% of world economy........


If u are not Philip, can u tame the pretty woman?

Posted by qqq33333333 > 2020-05-08 10:06 | Report Abuse

Bursa is the kampong girl ......but kampong girl cukup lah for most of us............

Posted by David > 2020-05-08 12:23 | Report Abuse

thanks philip, appreciate your thoughts as always.

qqq, thanks for the reminder. i dont think any of us are in philip’s league. i only own 2 china based companies (Baba and Feihe). Sold vitasoy, felt feihe has higher growth potential. yah, need to be careful with china companies. Cant monitor so many, need to pick and chose the best.

Posted by Philip ( buy what you understand) > 2021-01-31 12:53 | Report Abuse

So far this has been another one of those, pump and dump with a conscience stocks, as after I sold feihe for palantir, it is one of those where growth is assured, but since we have limited time and limited resources, we can only choose the stocks that will perform the best in life.