Southern Dairy IPO: Fundraising Reduced by 430 Million, Cut 100 Million Supplement to Working Capital, No Invention Patents

On March 18, Guizhou Southern Ruminant Co., Ltd. (Southern Ruminant) successfully listed on the Beijing Stock Exchange, with CITIC Securities as the sponsor.

Southern Ruminant integrates the research and development, production, and sales of dairy products and dairy beverages, as well as dairy cattle breeding. Its main products include various low-temperature dairy products (pasteurized milk, fermented milk, low-temperature formulated milk), ambient dairy products (sterilized milk, formulated milk), dairy drinks, other dairy products, and fresh milk. Its brands include “Shanhua,” “Huadu Ranch,” “Huaxi Old Yogurt,” and “Guicao.”

According to quick analysis, for this IPO, Southern Ruminant plans to issue no more than 35.1852 million shares to raise 550 million yuan, which will be used for the construction of the Southern Ruminant dairy cattle breeding base in Wening County and the marketing network construction project of Guizhou Southern Ruminant. The funds will be allocated as 400 million yuan and 150 million yuan, respectively.

The fundraising has been reduced by 430 million yuan, with a 100 million yuan cut from the working capital supplement project. The previous draft application aimed to raise 980 million yuan, with 480 million yuan allocated to the marketing network construction, a difference of up to 330 million yuan compared to the hearing draft. The draft also included a 100 million yuan working capital supplement, which was removed in the hearing draft.

In fact, the company’s debt-to-asset ratio is not high, at 33.97%, 39.84%, 26.35%, and 25.07% during the reporting periods. At the end of the period, it had 430 million yuan in cash, short-term loans of 10 million yuan, and non-current liabilities due within one year totaling 105 million yuan, along with 116 million yuan in long-term loans, indicating that cash flow can cover both short- and long-term interest-bearing debt.

More importantly, the company has paid dividends consecutively during the reporting period: 94.004 million yuan in 2022, 86.438 million yuan in 2023, and 60 million yuan in the first half of 2025, totaling over 2.4 billion yuan—far exceeding the amount allocated for working capital in the draft. Under these circumstances, additional funding through capital injection appears unreasonable.

Despite the poor performance of industry leaders, the company plans to expand production? During the reporting period, Southern Ruminant’s utilization rates for low-temperature dairy products and beverages were 85.48%, 93.27%, 99.76%, and 98.91%, with a projected 2024 output of 54,300 tons. For ambient dairy products and beverages, utilization rates were 97.06%, 95.95%, 93.65%, and 96.73%, with a projected 2024 output of 133,400 tons.

After the completion of the company’s expansion project funded by this IPO, the herd size at the farm could reach 10,000 cows, with an annual fresh milk production of approximately 55,270 tons. The company states in the prospectus that even after the Wening County Southern Ruminant dairy cattle breeding base reaches full capacity, it will still not fully meet the demand for raw milk (the external purchase gap for raw milk in 2024 is 100,924.42 tons). However, the company also notes that the construction cycle of the funded projects is long, and during this period, market environment changes and consumer demand trends are uncontrollable factors. If the company fails to adjust in time to market changes, resulting in declining performance, there is a risk of overcapacity in the new production capacity.

Currently, the dairy industry faces oversupply, with leading companies Yili and Mengniu performing poorly. In 2025 mid-year reports, Yili’s revenue increased but profit did not, with operating income of 61.777 billion yuan and net profit attributable to the parent of 7.2 billion yuan, representing year-on-year changes of +3.49% and -4.39%. Mengniu’s revenue and net profit both declined, with 41.567 billion yuan and 2.046 billion yuan, down 6.95% and 16.37%, respectively. In this context, is it appropriate for Southern Ruminant to expand production?

Sales expenses are 11 times the R&D expenses, which lag behind most peers. During the reporting periods, R&D expenses were 9 million, 11.67 million, 12.17 million, and 5.76 million yuan, with R&D expense ratios of 0.57%, 0.65%, 0.67%, and 0.67%.

Compared to itself, sales and management expenses far exceed R&D expenses, at 112.082 million, 118.348 million, 130.558 million, and 63.701 million yuan, and 64 million, 70.2 million, 69.69 million, and 35.9 million yuan, respectively. At the end of the period, these two major expenses are 11.06 times and 6.23 times the R&D expenses, indicating relatively low investment in R&D that needs strengthening.

Compared to industry peers, the average R&D expense ratios are 1.25%, 1.15%, 1.35%, and 1.27%, all higher than the company’s. Furthermore, many peers spend more on R&D. For example, in 2024, R&D investments of Yili, Sanyuan, Huangshi Group, Tianrun Dairy, Yantang Dairy, Manor Farm, and Sunshine Dairy are 870 million, 513 million, 137 million, 49 million, 16 million, 7.2 million, and 1.6 million yuan, respectively—all higher than Southern Ruminant, except Manor Farm with 8.5154 million yuan.

On the other hand, the company’s R&D expense ratio is below 1%, and it holds no invention patents. As of the signing date of the prospectus, it owns 15 patents—11 utility model patents and 4 design patents. Clearly, the company needs to increase its focus on R&D investment.