Analysis of Bright Dairy's Response to Xiaoxiniu's Unmet Performance Commitment

Based on the collected information, I will conduct a

analysis of Bright Dairy’s strategies in response to Xiaoxiniu’s unmet performance commitment.

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In November 2021, Bright Dairy acquired a in for , while agreeing on performance commitment clauses. According to the agreement, from 2022 to 2024, Xiaoxiniu’s adjusted net profit targets were respectively, with the cumulative three-year net profit target no less than . [1][2]

Year	Committed Net Profit	Actual Net Profit	Completion Rate
2022	RMB 84.56 million	Approximately RMB 84.56 million	Barely Met
2023	RMB 95.97 million	RMB 79 million	82.56%
2024	RMB 108.9 million	RMB 104 million	95.22%
Three-Year Total	RMB 290 million	Approximately RMB 271 million	93.32%

In 2025, after the performance commitment period expired, Xiaoxiniu’s performance showed a more significant decline. From January to August 2025, Xiaoxiniu achieved operating revenue of RMB 353 million, with adjusted net profit of only

, which is far lower than the full-year 2024 figure of RMB 104 million. [1][2]

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According to Bright Dairy’s response to the inquiry letter from the Shanghai Stock Exchange, the main reasons for the performance decline include:

• Overcapacity
  in the dairy industry
• Declining
  consumer demand
  for dairy products
• Shrinking
  market size
  of liquid milk
• Declining raw milk prices and intensified price wars [1][2]

• After the performance commitment period expired, negotiations between the two parties regarding the
  40% stake transaction
  of Xiaoxiniu took a long time
• Which led to the
  distracted focus of Wang Weisheng
  , then general manager of Xiaoxiniu
• Some stakeholders had concerns about
  uncertainties in future development
• Which had a
  phased impact
  on the overall business [1]

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Bright Dairy clearly stated that

, and failure to perform the agreement will result in breach of contract liabilities. In November 2025, the company announced its plan to acquire the remaining 40% stake in Xiaoxiniu for . [1][2]

• Valuation Benchmark Date: December 31, 2024
• Valuation of Total Equity:
  RMB 1.08 billion
• Valuation Appreciation Rate:
  217.57%
• Implied Total Valuation Based on Transaction Price:
  RMB 1.25 billion
  [1]

Bright Dairy explained in detail to the Shanghai Stock Exchange its strategic considerations for proceeding with the acquisition:

Strategic Dimension	Specific Content
Geographical Expansion	Rapidly achieve strategic layout in the northwest; Xiaoxiniu’s liquid milk has a market share of over 60% in Qinghai Province
Channel Synergy	Xiaoxiniu has mature channels in Qinghai and surrounding areas, which can be used to sell Bright Dairy’s high-end products
Capacity Complementarity	Xiaoxiniu has high-quality milk sources with a self-sufficiency rate of over 50% in Ningxia and Qinghai, locking in the northwest “Golden Milk Source Belt”
Product Differentiation	Xiaoxiniu has characteristic products such as “plateau milk source” and “yak milk”, which can fill the gap in Bright Dairy’s characteristic dairy product category
Time Cost	Directly obtain mature sinking channels in the northwest, significantly reducing the time cost of national expansion [2]

Bright Dairy emphasized in its response:

• The current performance fluctuation is a
  short-term phenomenon
  , and
  there is no risk of continuous decline
• Growth mainly relies on the
  recovery of the western dairy consumer market
• Xiaoxiniu has made progress in the East China and South China markets by leveraging Bright Dairy’s channels [1][2]

Combined with Bright Dairy’s own performance (in the first three quarters of 2025, operating revenue was RMB 18.231 billion, down 0.99% year-on-year; net profit was RMB 87.21 million, down 25.05% year-on-year), the company has taken a number of measures:

1. Optimize Product Structure
   : Focus on high-end products such as
   Zhiyou
   and
   Youbei
   to strengthen its position in the low-temperature milk market
2. Channel Deep Cultivation
   : Maintain stable growth in the Shanghai market (Q3 2025 revenue reached RMB 1.71 billion, up 2.58% year-on-year)
3. Cost Control
   : Avoid the high pasture construction costs in East China through capacity layout in the northwest [2]

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Despite Bright Dairy’s active response, it still faces the following challenges:

Risk Type	Specific Performance
Performance Risk	Xiaoxiniu’s performance declined sharply in 2025, and the sustainability of the decline remains to be observed
Valuation Dispute	The implied total valuation based on the current transaction price is RMB 1.25 billion, which is higher than the previous acquisition; regulators are concerned about the fairness of the valuation
Integration Risk	The long negotiation period has had an impact on management, and subsequent integration still needs to be refined
Industry Risk	The overcapacity situation in the dairy industry is difficult to fundamentally change in the short term

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Bright Dairy has adopted a comprehensive strategy of

to address Xiaoxiniu’s unmet performance commitment:

1. Legal Aspect
   : Avoid breach of contract and litigation risks by fulfilling the acquisition obligation
2. Strategic Aspect
   : Adhere to the northwest layout strategy, emphasizing channel synergy and product differentiation value
3. Expectation Management
   : Attribute performance fluctuations to the industry cycle and management transition period, and expect the recovery of the western market

In the future, the key to Xiaoxiniu’s performance reversal lies in:

• The recovery level of overall demand in the dairy industry
• The synergy effect of channel integration between Bright Dairy and Xiaoxiniu
• The effectiveness of expanding the characteristic dairy product market

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[1] Eastmoney - “Xiaoxiniu’s Performance Plunges Yet Valuation Remains High: Bright Dairy Responds to Inquiry” (https://wap.eastmoney.com/a/202601103614993087.html)

[2] Sina Finance - “Why Does Bright Dairy Favor Local Brand Xiaoxiniu?” (https://finance.sina.com.cn/jjxw/2026-01-15/doc-inhhkmpr7648516.shtml)

[3] Tencent News - “Brief Analysis of Bright Dairy (600597)'s Q3 2025 Financial Report” (https://news.qq.com/rain/a/20251101A010LL00)