Baby formula billionaire will be a winner as China plans to make more of its own

Venus Feng13:30, Nov 07 2019

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Parents struggling after shortages of baby formula in Adelaide

9News has obtained footage of an organise syndicate of shoppers stripping Adelaide shop shelves of baby formula.

More than a decade after China reeled from a scandal over tainted infant formula, the world's most populous country is seeking to reduce its reliance on imports with a plan to boost output locally.

China Feihe, the nation's biggest producer of baby milk, stands to be the biggest winner from the policy announced in June, and chief executive Leng Youbin is set to become a multibillionaire as the firm prepares for an initial public offering in Hong Kong.

The manufacturer sold 893.3 million shares at HK$7.50, the low end of the expected range, people familiar with the matter said, implying a market value of US$8.5 billion (NZ$13.4 billion). That makes Leng's stake of about 48 per cent worth more than US$4b, according to calculations by the Bloomberg Billionaires Index.

A representative for the company declined to comment on Leng's wealth.

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China Feihe CEO Leng Youbin is set to become a multibillionaire as the firm prepares for an initial public offering.

Feihe's market share more than doubled over two years to 7.3 per cent in 2018, making it the country's top-selling Chinese baby-formula brand, according to a prospectus. The Beijing-based company reported revenue of 10.4 billion yuan, with its premium infant milk accounting for 64 per cent of the total.

"We see growing demand for high-end, organic products," which are Feihe's main offerings, said Gu Xiangjun, an analyst at Capital Securities in Shanghai.

The industry took a devastating blow in 2008, when formula tainted with the industrial chemical melamine killed six children and poisoned almost 300,000 others. More than 50,000 were hospitalised.

That scandal still reverberates today as some Chinese consumers look for alternatives abroad.

Sending infant milk to China has become a boutique industry in Australia, where the government-owned postal service has stores to help service the so-called daigou trade for Mandarin-speaking customers. On a quiet Tuesday morning in Melbourne, a small pop-up shop offering delivery service to China featured tins of infant formula in the window.

Stricter regulations should help bolster continued growth "and lead to industry consolidation," said Hayman Chiu, an analyst at Cinda International Holdings in Hong Kong.

"We have a record of zero product-safety issues over 57 years," Feihe president Cai Fangliang said at an October 29 news conference. "Product quality is the life of our company."

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China, the world's most populous country, is seeking to reduce its reliance on imports with a plan to boost output locally.

The country's 2015 move to allow couples to have two children instead of just one also has helped to drive demand, Gu said.

Leng, 50, who's also chairman, isn't the only one benefiting from the company's growth.

Liu Yonghao, the billionaire founder of New Hope Group, acquired 2 per cent of Feihe for US$100 million in May, according to the prospectus. That stake is now worth at least US$159m. Liu, whose conglomerate controls an animal-feed producer as well as food, dairy and real estate interests, is China's 15th-richest person with a net worth of US$12b, according to the Bloomberg index.

"New Hope Group is a leader in the agriculture industry in China," Leng said at the news conference in Hong Kong, adding that Liu believes the companies can share resources to "collaborate on agriculture, animal husbandry and dairy products."

Leng graduated from Northeast Agricultural University in Heilongjiang in 1995 through a correspondence course, according to the prospectus. He later earned an executive MBA from Peking University's economics school.

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Liu Yonghao, the billionaire founder of New Hope Group, acquired 2 per cent of Feihe in May.

ECONOMIC RESTRUCTURING

Hongguang Dairy, Feihe's corporate predecessor, was established in 1962 as a state-owned enterprise and later changed its name to Zhaoguang Dairy.

Leng started working there in 1987 and served in various roles for about a decade. He went on to acquire more than 95 per cent of the firm's assets for 7 million yuan as China's state-owned companies underwent a restructuring to adapt to a market economy.