Beingmate is facing difficulties both internally and externally.

Zebra Consumer Chen Xiaojing

Due to the change of ownership of the debt of the controlling shareholder Beingmate Group, the Beingmate stock forum is once again buzzing.

For more than four years, Beingmate Group has neither repaid nor extended this debt, leading to multiple changes in ownership. Particularly, the second creditor, Great Wall Guorong, was even willing to suffer a loss of nearly 100 million yuan to publicly auction the debt to secure its funds.

In recent years, the infant formula industry has entered a period of adjustment, coinciding with Beingmate's developmental low. The company's core business has been declining year after year, and the glory of being the "first infant formula stock" has faded.

Returning to the top tier of the infant formula industry is highly unlikely. As the founder and actual controller, how will Xie Hong lead the company out of this slump?

Debt Changes Hands Twice

Beingmate (002570.SZ), which had been quiet for a long time, recently caught the attention of small and medium investors again due to the transfer of a debt by its controlling shareholder.

Last Friday, the company announced that Beingmate Group and its actual controller Xie Hong received a notice of debt transfer from related party Great Wall Guorong, confirming the auction of a 342 million yuan debt.

This debt has a long history.

In December 2018, Beingmate Group pledged 48 million shares of Beingmate stock to AVIC Trust to secure a loan of approximately 233 million yuan, with the pledge period from December 11, 2018, to January 10, 2022. Xie Hong and Beingmate Group's legal representative, Yuan Fang, provided joint guarantees for this.

However, the loan was not repaid on time. In April 2022, AVIC Trust transferred the debt to Great Wall Guorong.

Great Wall Guorong was far less patient. As Beingmate Group failed to fulfill its repayment obligations, it applied to the Hangzhou Intermediate Court for compulsory enforcement, which was filed in January last year, with an enforcement target of 316 million yuan plus interest.

On December 7, 2023, Great Wall Guorong publicly auctioned this 342 million yuan debt on the JD platform, with Ningbo Weibei winning the bid for approximately 233 million yuan. On April 9, Great Wall Guorong issued a "Debt Transfer Notice" to Beingmate Group, Xie Hong, and related parties, announcing another change in debt ownership.

The case still requires a ruling from the Hangzhou Intermediate Court. Once enforced, it will involve 53 million shares held by Beingmate Group in the listed company (accounting for 4.91% of the total shares). Apart from these shares, the group also holds 11.82% of Beingmate's shares, nearly all of which are pledged or frozen.

Despite this predicament, Beingmate Group still claims to be prepared for stock price fluctuations and denies any risk of a change in control.

Does Beingmate Group truly have the ability to manage these risks? Data shows that the group's debt-to-asset ratio exceeds 90%, and it continues to operate at a loss. As of February this year, Beingmate Group's total borrowings amounted to 714 million yuan, with 481 million yuan due within the next six months.

Infant Formula Sales Decline

While the controlling shareholder struggles, Beingmate has finally shown a glimmer of hope.

According to its earnings forecast, the company is expected to achieve a net profit attributable to shareholders of 40 million to 60 million yuan in 2023, finally emerging from heavy losses. Its non-GAAP net profit is projected to be between 2 million and 22 million yuan.

The company attributes the improvement in performance to strengthened accounts receivable collection and inventory management, with credit impairment losses and inventory write-downs significantly reduced compared to the previous year.

However, upon closer analysis, Beingmate's ability to generate cash flow has not fundamentally improved.

Infant formula has always been the company's core business, contributing 90% of its revenue. As the infant formula industry enters a period of deep adjustment and the market for infant formula shrinks, Beingmate's main business faces severe challenges, and the title of "China's first infant formula stock" has lost its luster.

Data shows that the company's infant formula revenue has declined from 2.508 billion yuan in 2019 to 2.276 billion yuan in 2022. In the first half of 2023, it further decreased by 0.76% to 1.181 billion yuan, with sales volume dropping 3.75% year-on-year to 10,000 tons.

Beingmate's struggles in selling infant formula are even more apparent to its distributors. In the first half of 2023, the company added 267 distributors, but the average revenue per distributor was only 145,400 yuan, a 50% year-on-year decline.

This has led to another consequence: severe underutilization of production capacity. As of the end of June last year, the company's designed annual production capacity was 122,300 tons, but its actual annual production capacity was only 68,000 tons. Despite this, Beingmate is still expanding its Tianjin factory by 20,000 tons, expected to be operational by April 30.

Xie Hong's Struggles

Beingmate was once hailed as the king of domestic infant formula, ranking among the top three in the market amid fierce competition from domestic and international brands.

In 2011, the company went public, and shortly afterward, Xie Hong handed over management to professional executives, retreating to focus on scientific research.

In 2013, the company reached its peak performance, with revenue of 6.12 billion yuan and net profit attributable to shareholders of 720 million yuan, enjoying unparalleled glory.

But then it began a downward spiral, reporting consecutive losses in 2016 and 2017, leading to delisting risks. In 2018, it narrowly avoided disaster by selling assets.

At this point, the second-largest shareholder, Fonterra, lost confidence in the company's development and began selling Beingmate shares at any cost starting in September 2019, suffering losses of up to 2.2 billion yuan over six years.

Following Fonterra's lead, former strategic investor Changhong Fund also gradually reduced its stake and exited.

Executives also fled. In 2018, Beingmate hired professional manager Bao Xiufei at a high price to serve as general manager, but he failed to turn the company around. In January 2021, Bao left before his term expired.

Xie Hong had no choice but to return to the company, taking on the roles of chairman and president, facing a situation of internal and external crises.

Xie Hong himself is also embroiled in troubles. According to Qichacha, he is the defendant in 12 judicial cases involving 873 million yuan. In February last year, he was subject to enforcement actions totaling 43.2913 million yuan, with a 100% non-compliance rate.