Changpeng Wan
The Questionable Pursuit for Listing
Baifei Dairy makes its third attempt at an initial public offering, brandishing an eye-catching 40% gross margin that dwarfs industry giants like Yili (28%) and Bright Dairy (25%). This Guangxi-based company—promoting water buffalo milk as its niche product—filed for Shanghai’s main board IPO in June 2025 after abruptly withdrawing from Beijing Stock Exchange (BSE) in late 2024. But behind the headline figures lie critical questions: Can a company with minimal research investment sustain such margins? Are investors being sold a scientifically unsubstantiated premium product or a bubble waiting to burst?
The phrase “40% gross margin” dominates Baifei’s IPO narrative, yet operational inconsistencies suggest vulnerability. Water buffalo milk comprises just 0.1% of China’s dairy supply, creating inherent scarcity but also exposing Baifei’s dependency on volatile raw material pricing. With regulators intensifying scrutiny on profitability sustainability, Baifei’s journey represents more than a listing—it’s a stress test for China’s agri-food financial disclosures.
Key Concerns for Investors:
– Repeated IPO withdrawals reveal fundamental weaknesses
– Milk sourcing strategy leaves 40% gross margin exposed to commodity swings
– Related-party transactions suggest governance risks
– R&D expenditure at 0.58% jeopardizes technological edge
The IPO Obstacle Course: Regulatory Red Flags
Beijing Stock Exchange’s 60-Day Exit
Baifei’s listing journey reveals alarming volatility: A 2023 Shanghai application vanished without explanation; an August 2024 pivot to BSE ended in December withdrawal after merely 60 days. BSE’s October 2024 innovation thresholds illuminate the retreat. To qualify, firms needed either:
– >3% R&D-to-revenue ratio (2021-2023)
– Minimum ¥10 million annual R&D spending
– ≥10% revenue CAGR
Baifei failed catastrophically—R&D spending averaged ¥0.37 million annually (0.54% revenue), barely one-tenth Huangshi Group’s investment. Returning to Shanghai won’t erase this deficiency: 2024 R&D remained at 0.58%, industry’s lowest tier.
Innovation Credibility Problem
The company’s patent portfolio—23 total filings—includes 18 design patents versus five utility/process innovations. Meanwhile Huangshi Group commercialized advanced technologies like buffalo embryo transfers. When a “premium dairy” primarily invests in packaging aesthetics rather than biological R&D, its innovation claims unravel rapidly. Flawed premises jeopardize IPO approval.
The Margins Mirage: Anatomy of a Bubble
Structuring the High Margins
Baifei’s 40% gross margin emerges disproportionately from plunging raw milk prices rather than operational superiority. Average procurement cost for raw buffalo milk plummeted 19.57% in 2024 to ¥3.07/kg. With 90% of milk externally sourced—own farms contribute just 5.05%—Baifei holds zero supply-chain leverage during price rebounds. History indicates raw milk volatility cycles every 2-3 years; the moment prices recover, this artificial profitability evaporates.
Cash Flow Reality Check
Despite 32% revenue growth in 2024, net cash flow fell 3% to ¥372 million. This contradiction exposes superficial accounting gains versus authentic business health:
– Accounts receivable turnover: 76.9 vs industry 104.1
– Selling ¥100 products spends ¥44 on e-commerce fees
– Inventory turnover (9.34) trails peers (12.11)
When receivables balloon while cash shrinks, Baifei prioritizes paper profits over commercial vitality—potential investors must see overheads exceeding long-term resilience.
Governance Risks: The Sahibai Fei Transaction Trail
The Six-Fold Gamble
In 2024, Baifei paid ¥60 million for 60% of Sahibai Fei Ranch—valued at six times its net assets despite ¥8.8 million book value. Acquired ranch operator Ma Jiajun (马佳军) happens to be sibling of shareholder Ma Jiahui (马佳慧). Worse: Zero transactions occurred between Baifei and Sahibai pre-acquisition. Post-deal? Transactions exploded to ¥89.12 million covering cows, feeds, and raw milk.
Red Flags Concern
Such deals invite hard questions: Why pay premium prices for interdependent assets? Could this enable profit manipulation through transfer pricing? Securities regulators will probe whether this constitutes tunneling benefits toward controller Wu Shouyun (吴守允). For minority investors, Sahibai evolves from ranch to liability—a financial loophole threatening governance integrity.
Cracks Beneath the Marketing Veneer
Inflated Marketing Spending
Baifei allocated ¥193 million (80% YoY increase) to sales in 2024—43.9% dedicated to e-commerce promotion. Yet growth metrics deteriorated brutally:
– Repeat purchase rates crashed from 45% to 32%
– Return rates doubled industry averages to 35%
The core problem emerges: Water buffalo milk sells at approximately ¥4/box versus competitors like Yili Ambrosial at ¥3. Without taste superiority or functional innovation, dependence on KOL endorsements traps Baifei as a spending treadmill—more dollars chasing declining loyalty.
The Technology Void
Negligible R&D investment creates critical vulnerability:
– Huangshi Group spends 8.76X budget: ¥71.97 million
– Outsourced production signals manufacturing incapacity
– Zero patented fermentation/stabilization processes
Achieving a 40% gross margin requires differentiating biochemistry—yield optimization, flavor enhancement protocols—not cosmetic patents. Baifei’s techno-economic foundation resembles cardboard: impressive visually, structurally unsound.
Questionable Funding Allocation
Superficial Expansion Logic
Baifei targets ¥497 million IPO funding: 75% (¥374 million) for “Smart Buffalo Farms” despite 95% milk externally sourced. Current grazing land utilization leaves ample slack—so why build redundant capacity? Meanwhile, inventory turnover lag warrants scrutiny around unsold goods accumulation. More incapacitating:
– Cash reserves hit ¥647 million by 2024
– Debt ratio just 16.2%
Raising additional capital signals either ominous spending requirements undisclosed—or exploiting valuation peaks before Wu family’s 81.49% stake opens for divestment.
Investor Vulnerability
The interplay between overfunding farms and evaporating margins suggests eventual asset impairment. Should raw milk regain ¥3.70/kg (16% increase), Baifei’s 40% gross margin collapses toward 25-27% peers achieve reliably. Expansion amid declining fundamentals resembles burning investor capital to camouflage fragility.
The Verdict: Profitability Beyond Promotion
Baifei Dairy’s struggle symbolizes China’s agri-finance crossroads—companies promising premiumization while ignoring foundational R&D and sourcing security. Regulators penalized its thin innovation once already; unless substantive changes occur, market forces will deliver harsher discipline. Raw milk’s inevitable rebound will expose embedded margin toxicity. E-commerce traffic dependency grows unsustainable against competitors fortifying technologies.
For discerning investors, scrutiny extends beyond bubble terminology. Examine:
– Independent supply chain audits
– Patent quality assessment
– Post-acquisition Sahibai transaction patterns
The 40% gross margin merits celebration only alongside durable competitive advantages absent here. Water buffalo milk deserves science-led evolution, not financial engineering. Until Baifei transcends marketing theatrics, caution defines prudent strategy. Consult forensic dairy-sector analysts before IPO participation—this story needs less stock exchange dreams and more laboratory breakthroughs. Solid businesses nourished cows before chasing numbers.
