600,000 "dairy source giants" born: Mengniu (02319) uses 10% of its capacity to tightly grasp 30% of the efficient chassis of Chinese dairy industry.

In May, in Hohhot, the grass is long, the birds are flying, and the Chinese dairy industry is feeling the early signs of spring after the harsh winter in a public announcement. A major piece of news exploded in both the capital market and the industrial sector simultaneously: on May 7th, the integration of the CH MODERN D and CHINA SHENGMU projects was officially approved for antitrust review. The transaction will be completed by SPA delivery on May 22nd or earlier, triggering a mandatory tender offer. The focus of the outside world often tends to linger on the grand narratives on the surface - after the merger, according to the financial report as of the end of 2025, this new "dairy behemoth" will have a huge herd of over 600,000 cows, with an annual output of over 4.1 million tons of raw milk, leaping to become a top-tier livestock carrier in the world. Behind this massive data set, lies a more profound industrial truth: while the Mengniu group's total share of the national dairy sources seems to be less than 10%, it quietly grasped the throat of nearly 30% of the top efficient dairy farms in the country through the dual grip of capital and management of CH MODERN D. But the far-reaching significance of this integration lies not only in the "physical accumulation" of volume but also in the key step it takes towards pushing China's dairy sources towards higher quality development. When the standardized management of CH MODERN D meets the "desert organic" genes of CHINA SHENGMU, the two sides not only achieve precise collection of top "super cows" and "super land" but also open up a value loop from "higher quality dairy sources" to "higher quality dairy products" - only high-quality dairy sources can support the quality moat of future low-temperature fresh milk and high-end dairy products. This is not a "pie-slicing" capacity stack-up but a downgrade from "pursuing total volume" to "controlling quality capacity." The underlying business logic of the Chinese dairy industry has fundamentally changed. In the future, the core of dairy industry competition will be how many "good cows" one has. In the past twenty years, the competitive paradigm of the Chinese dairy industry has always revolved around "expanding territories." The one who has the most cows is the biggest. Yet, at the moment of CH MODERN D's integration with Sengmu, this outdated scale theory has been completely overturned. After the merger, the territory of CH MODERN D has expanded unprecedentedly: 600,000 dairy cows, an annual output of 4.1 million tons, ranking among the top dairy companies in the world. However, placing it in the context of China's annual dairy production of over 40 million tons, this mere 10% share seems insufficient to form a monopoly. However, the core secret is: what the Mengniu group truly controls are the batch of "super farms" with the highest single production and the best quality in the country. According to reports from Holstein, by 2025, 25 farms in China have exceeded a single production of 14 tons, among them, 5 farms under CH MODERN D and CHINA SHENGMU accounted for over 20%. However, if you include the number of farms with production of over 13 tons, then the proportion of efficient upstream farms under the Mengniu group is close to 30%. This is like the "TSMC phenomenon" in the semiconductor industry. TSMC's production capacity is not the world's largest, but it controls the majority of the production capacity for the most advanced processes in the world. Whoever controls the high-end manufacturing of 3nm and 5nm, controls the pricing power of mobile phone chips. The merger of CH MODERN D and Sengmu is a replication of this logic. The single production level, milk protein rate, somatic cell control, microbial indicators, and higher proportion of specialty milk of top efficient farms all form a crushing advantage over scattered and medium-sized farms. While the industry's average single production still hovers around 10-11 tons, the benchmark farms under CH MODERN D have already exceeded 14 tons or even higher; while others are still worrying about substandard milk protein in raw milk, Sengmu's organic farms have already stabilized the indicator at above 3.3%. The merger of the two essentially created a precise collection of the most top "super cows" and the best "super land" in the country. At the same time, this national efficient layout directly supports Mengniu's ultimate supply chain advantage in low-temperature products such as fresh milk. Combined with this advantage, Mengniu has directly transformed this 30% efficient base into a supply chain barrier for low-temperature fresh milk and high-end yogurt. While others are still worrying about substandard raw milk indicators, CH MODERN D has already defined what "good milk" means. The "1+1>2" management magic If it were just a physical joining of two farms, the market might only give a mediocre valuation. However, the reason why this integration is called "magic" is that it breaks the internal conflicts and achieves the overflow of management capabilities. Before the merger, although CH MODERN D and Sengmu were both under the Mengniu group and the majority of the production capacity was already supplying Mengniu directly, they did not form a unified procurement entity, and management was not mutually connected, and the allocation of raw milk was limited by their respective systems. Therefore, the core of Mengniu's integration this time is not simply to "expand the source of milk" but to create a "deep control" of the existing vast sources of milk through a unified group-wide and highly profitable upstream platform. After the integration, the sources of milk under the Mengniu group are no longer a loose alliance of individual battles but a true national efficient allocation network. In the northern golden milk source belt, the desert organic farms of CHINA SHENGMU and the large-scale farms of CH MODERN D in the north have formed a strong alliance to consolidate Mengniu's absolute dominance in high-end and organic raw milk; at the same time, leveraging the farm nodes of CH MODERN D in the core consumption markets such as East China and Central South, Mengniu further strengthens its coverage of the southern core consumption markets. This "northern heavy troops gathering + nationwide network" matrix directly supports Mengniu's ultimate supply chain advantage in low-temperature products such as fresh milk. Low-temperature fresh milk and high-end yogurt have almost strict requirements for "timeliness" and "freshness." Faced with the long-standing pain point of "milk from the north being transported to the south," Mengniu, through the top-down unified connectivity, has broken the limitations of different milk deliveries of the two farms. Now, Mengniu can take an overall view and match each drop of raw milk to the optimal processing plant, greatly optimizing the transport routes and efficiency across regions and plants. While competitors are still troubled by the loss of active nutrients due to long-distance transport, the Mengniu group has built a regional supply chain for high-end products such as "24-hour fresh milk" based on its efficient farm network. More importantly, this absolute control of upstream resources gives Mengniu great initiative when facing consumption upgrades. The fusion of Sengmu's "organic" genes with CH MODERN D's "scale" lineage directly reshapes Mengniu's product structure, whether it is high-end ambient temperature milk like Telunsu or benchmark fresh milk like Everyday Fresh, the backing behind them stems from the top raw milk provided by these 30% efficient farms. The closed loop of upstream sources ensures Mengniu's continued leadership in the high-end market, forming a value loop of "good farms - good milk - good brand." Of course, the starting point for all this is the terrifying "ranch management operating system" of CH MODERN D. It is a leading provider of "ranch management SaaS system" in the country - with a standardized, digital, and replicable ranch management system, this is the core foundation for integrating Sengmu and achieving efficiency improvement. In 2025, the feed cost per kilogram of milk from CH MODERN D was only 1.77 yuan, at the lowest level among the listed dairy companies in Hong Kong with disclosed data, this extreme cost control is a strong confirmation of the efficient operation of its standardized management system. Raising cows is not like entertaining guests for a meal, but a fierce battle for every inch. The scariest thing about CH MODERN D is that it has played the standardization and digitalization of large farms to the extreme, building a standardized management system that covers the entire chain from "breeding - breeding - disease prevention - milking - storage and transportation": Unified breeding standards for dairy cows, ensuring stable herd quality; uniform feed formulas and breeding processes to ensure consistent raw milk quality; digital disease prevention system for early disease warning and control; fully automated milking equipment and cold chain storage and transportation system to ensure freshness of raw milk. In this way, this integrated system, like a "ranch management operating system," can be quickly replicated to other farms, achieving standardization of management and maximized efficiency, which is the key reason why Mengniu chose it as the core of integration. Therefore, from the cluster of "super farms" in the upstream, to the "lighthouse factory" intelligence manufacturing in the middle, to the nationwide cold chain fulfillment network in the downstream, Mengniu has successfully connected the lifeblood of the industry chain. Every drop of high-quality raw milk can be transformed into high-end fresh milk on the shelves in the shortest time, this full-value chain loop from "a blade of grass" to "a glass of milk" is the core strategic intent of Mengniu's integration this time. Conclusion For the capital market, the most profound significance of this merger lies not in the increase or decrease of numbers on financial statements but in the complete overturn of the valuation system. For a long time, the capital market's valuation of farms has remained in the stereotype of "agricultural stocks": looking at total revenue, inventory, and cycle fluctuations. In this algorithm, farms are seen as cumbersome, inefficient, greatly influenced by fluctuations in raw milk prices, and thus, their valuation has always been suppressed. The integration of CH MODERN D and Sengmu announced the birth of a new valuation logic - "the proportion of top efficient production capacity" + "management overflow effects." Investors are no longer just interested in how many cows you have but in how many cows can produce good milk, and whether you can make these cows produce more profits through management. With the approval of the antitrust review, this transaction will slowly move towards completion, and the future CH MODERN D will no longer be the traditional farming stock that relies on nature for survival. It is more like a modern agricultural infrastructure stock with the attributes of "technology + management." It possesses a scarce high-quality milk source license, an irreplicable geographical advantage, and digital management capabilities, stronger risk resistance, and predictable profitability expectations.