Meiji withdraws from China's dairy business, AustAsia takes over for up to 350 million yuan

Aoyea Group plans to take over Meiji's dairy production and sales business in China. On July 21, Aoyea Group announced that its wholly-owned subsidiary, Shanghai Aoya Food Co., Ltd., intends to acquire all shares of Meiji China's newly established subsidiary. The base purchase price is 320 million yuan, with an adjusted upper limit of 350 million yuan. Before the transaction, Meiji China will undergo restructuring, transferring Meiji Dairy's Suzhou and Tianjin companies, related assets, personnel, and contracts into the target company. After the acquisition is completed, the target company will be included in Aoyea Group's consolidated financial statements. The two companies mainly produce milk, yogurt, and cream in China. Aoyea also plans to sign a trademark license agreement with Meiji Japan to continue using some Meiji trademarks. Aoyea Group's core business is dairy farming and raw milk production. It also engages in dairy sales and distribution. This acquisition means it will further supplement its downstream manufacturing capabilities, extending into dairy processing. As Meiji China holds about 15.85% of Aoyea Group’s shares and is its major shareholder, this acquisition constitutes a connected transaction that still requires approval from independent shareholders. Based on the upper purchase price of 350 million yuan, the target group’s unaudited pro forma net assets corresponding to the end of 2025 are about 548 million yuan, implying a price-to-book ratio of about 0.64 times, which is a about 51.1% discount compared to the median price-to-book ratio of 1.31 times for five comparable A-share dairy companies. Behind the discount is the continued losses of the target business. In 2024 and 2025, the target group’s post-tax losses are about 149 million yuan and 156 million yuan respectively. As a result, Aoyea chose price-to-book ratio as the main valuation basis, believing that price-to-earnings and EV/EBITDA cannot accurately reflect the value of its manufacturing assets. This transaction needs to be viewed in the context of changes in the upstream and downstream relationships of China’s dairy industry and the process of industry cycle recovery. Six years ago, the direction of cooperation between the two parties was the exact opposite. In 2020, Meiji acquired 25% of Aoyea Group’s pre-IPO entity, AustAsia Investment Holdings, for $254.4 million. At that time, Meiji stated that its sales in China were steadily growing, with refrigerated milk business seeing significant growth in the East China market. The company expanded the Suzhou factory, prepared for the Tianjin factory, and secured high-quality raw milk by investing in upstream farms. The logic then was downstream dairy enterprises extending upstream to support their expansion in the Chinese market. Six years later, the roles have reversed. Meiji plans to sell its continuously loss-making and relatively underutilized dairy business to Aoyea; Aoyea, in turn, hopes to acquire two factories and the existing sales network to provide internal consumption channels for its self-produced raw milk. This change is driven by the changing supply and demand dynamics in China’s dairy industry. In the past four years, growth in raw milk supply combined with weak end demand plunged the industry into a prolonged downward cycle. In 2025, national milk production is expected to increase 0.3% year-on-year to 40.91 million tons, but dairy production will decline 1.1%, and fresh milk prices in major producing provinces will fall by 7.8% year-on-year. As dairy herd numbers continue to decrease, the amount of surplus raw milk converted to powder drops in 2026, milk prices begin to stabilize, but supply-demand pressure has not been fully digested. For Aoyea, extending downstream is a proactive hedge. In 2025, Aoyea achieves revenue of 3.468 billion yuan, a 5.9% year-on-year decrease; falling milk prices cause revenue from raw milk, which accounts for over three-quarters of total revenue, to decline by 7.3%. Over the same period, Aoyea’s dairy herd drops by 8.2% to 112,200 head, but the number of mature cows declines only 1.6%, with annualized milk yield per cow actually increasing 0.7% to 14.1 tons. After the acquisition, Aoyea can channel more self-produced raw milk into downstream factories, improve capacity utilization, dilute fixed costs, and reduce reliance on third-party customers. However, its operational risks will also further extend to product, channel, and brand management. The target business has recorded losses for two consecutive years. Aoyea will have to not only improve factory utilization but also address issues regarding end demand, product structure, and channel efficiency. For a company that has long been focused on upstream dairy farming, completing the acquisition is only the beginning of vertical integration. Risk Warning and Disclaimer The market has risks, investment requires caution. This article does not constitute personal investment advice and does not take into account the special investment objectives, financial situation or requirements of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are suitable for their specific circumstances. Invest accordingly, at your own risk.