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China Mengniu Dairy Company Limited (SEHK: 2319) manufactures and distributes dairy products in China. It is one of China’s leading dairy manufacturers, with Mengniu as its core brand. The group’s product range includes liquid milk, ice-cream, milk formula, and yoghurt. As of the end of June 2019, China Mengniu’s annual production capacity of dairy products reached 10.27 million tons.
Investors may be wondering how China Mengniu makes money, as it is a large conglomerate with many different business divisions. I find that in order to make sense of such a large organisation, it’s helpful to break the analysis down into different operating divisions.
Each division can then be assessed and analysed so that the investor can better understand how it generates revenue for the overall group. China Mengniu has four main operating segments: liquid milk products, ice cream products, milk powder products and others.
Liquid milk products
The liquid milk products division is China Mengniu’s largest division and its main revenue contributor. It sells UHT milk as its core product as well as room temperature yoghurt and milk beverages.
This division also sells fresh milk products under the “Shiny Meadow” and the “Modern Meadow” brands. Sales from this division made up 83.1% of revenue and around 80% of total segment profit for H1 2019.
Ice cream products
Ice cream products segment consists of Deluxe, Mood for Green and Mengniu Russian-style milk ice-cream brick. This division made up 5.5% of revenue and around 10.3% of total segment profit.
Milk powder products
This division sells formula milk products for babies and children. They include brands such as Yashili, Mengniu and Dumex Diamor. This division made up 10.6% of revenue and 5.3% of total segment profit.
Other products include a mix of different milk-based products such as cheese and butter products under brands Future Star, Mengniu and Aria. This is China Mengniu’s smallest division, contributing just 0.8% of total revenue. The division made a small loss for H1 2019.
Putting it all together
The above table shows China Mengniu’s sales and segment profit mix for H1 2019. As mentioned, liquid milk products take up the bulk of revenue and segment profit but it is not the highest segment margin division.
In fact, ice cream products sports the highest segment margin of China Mengniu’s three key divisions, though its revenue contribution is small at just 5.5%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang doesn’t own shares in any companies mentioned.