[ET Net News Agency, 17 September 2019] S&P Global Ratings today said that China
Mengniu Dairy Co. Ltd. (Mengniu; BBB+/Stable/--)(02319) has sufficient financial cushion
to absorb its proposed acquisition of Bellamy's Australia Ltd.
Bellamy's good position in Australia's organic infant milk formula (IMF) and baby foods
segments will increase Mengniu's product and geographic diversity in the long term
--although the near-term synergy is likely to be limited, given Bellamy's small scale.
Mengniu's debt leverage will remain low after its acquisition of Bellamy for a cash
consideration of A$1.46 billion (equivalent to about RMB7.1 billion).
Mengniu's disposal of Shijiazhuang Junlebao Dairy Co. Ltd. for RMB4.58 billion in June
2019 and the company's solid operating performance in the first half of 2019 have built up
its financial buffer for a relatively sizable acquisition.
On a pro forma basis, S&P estimated that Mengniu's debt-to-EBITDA ratio will increase to
about 1.0x in 2019, from its previous forecast of below 0.5x for the year. Bellamy had a
net cash position as of June 30, 2019.
The agency said Bellamy will boost Mengniu's brand in China's organic IMF market. In the
fiscal year ended June 30, 2019, Bellamy's revenue dropped by 19% due to a delayed
registration for its Chinese label IMF products with China's State Administration for
Market Regulation.
The decrease in revenue was also due to intensified competition in the organic IMF
segment. Mengniu should be able to help Bellamy streamline its distribution network and
enhance its brand awareness in China, given Mengniu's leading market position and
extensive network in China. The integration will take some time and the synergies may not
materialize over the next 12 months.
Additionally, Bellamy will help Mengniu expand into the fast-growing organic IMF
industry and penetrate into Australia, New Zealand, and Southeast Asian countries. But the
direct impact on Mengniu's competitive position, revenue, and EBITDA will be limited,
given Bellamy's small scale. (KL)