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October 12, 2011

 

Bright Dairy to establish dairy industry park in Shanghai
 

 

Bright Dairy & Food Co Ltd, China's third largest dairy producer, is set to build a dairy industry park in Shanghai's Minhang District, funded through the company's planned private shares sales of approximately RMB1.4 billion (US$220 million).

 

The industry park will be a comprehensive dairy demonstration plant that features innovation of dairy technologies, higher automation of production process, advanced method of quality inspection, energy efficiency and environment protection and combination of dairy processing and distribution.

 

Following the private share placement, Bright Food (Group) Co Ltd will see its stake in the Shanghai-listed company drop to 55.58% from 64.993%, but will remain to be the actual controller.

 

Analysts said the dairy demonstration plant's enhanced technological innovation will strengthen automation and standardisation of dairy production and ensure product safety. On the other hand, the plant will expand the company's production and improve its competitiveness, they added.

 

The plant will start production in 2014 with a daily production capacity of 2,000 tonnes. The after-tax internal rate of return on the project will be 17.57% and the static payback period will be 7.5 years including the project construction period.

 

Upon full-capacity production, the project is expected to bring before-tax profit of RMB230.05 million (US$36 million).

 

An insider says the project is paving the way for Bright Dairy's implementation of management equity incentive plan.

 

The state-owned Assets Supervision and Administration Commission of Shanghai Municipal Government in 2009 approved of the company's management equity incentive plan and stipulated conditions for the exercise in three phases.

 

The first-phase exercise will come in 2010 and 2011 fiscal year when Bright Dairy's operating revenue shall be not less than RMB9.48 billion (US$1.49 billion) and RMB 11.3776 billion (US$1.78 billion) respectively and net profit shall be minimum RMB190 million (US$30 million) and RMB228 million (US$36 million).

 

The second-phase exercise will come in 2012 with not less than RMB13.651 billion (US$2.14 billion) operating revenue and not less than RMB273 million (US$43 million) net profit. The third exercise will come in 2013 with minimum RMB15.842 billion (US$2.48 billion) operating revenue and RMB317 million (US$50 million) net profit.

 

Bright Dairy post RMB5.547 billion (US$869 million) operating revenue and RMB68 million (US$11 million) net profit in the first half of 2011, representing 48.76% and 29.82% of the full-year goal respectively.

 

It is pressurised to achieve faster growth in the second half by expanding the market share. The national review of dairy production permits has forced 45% unqualified dairy producers to exit, which is a good opportunity for Bright Dairy to seize a bigger market share.

 

Guo Ben Heng, president of Bright Dairy, this March adjusted the strategic goal that originally set to focus on fresh milk, room temperature milk and milk powder so as to achieve at least RMB11 billion (US$1.72 billion) revenue this year.

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