China Feihe gains drive Morgan Stanley's investment revenue

The private equity unit teamed up with Feihe’s chairman to privatize the company in a deal worth $147 million in 2013. MSPEA made an initial equity commitment of $28.1 million and is said to have invested less than $50 million overall. Feihe relisted in Hong Kong last November, raising HK$6.7 billion ($862 million) after pricing its shares at HK$7.50 apiece. The stock was trading at HK$10.80 as of midday on January 17, giving the company a market capitalization of approximately HK$96.5 billion.

MSPEA didn’t sell any shares in the IPO and continues to hold an 18.59% stake in Feihe. This is currently worth nearly HK$18 billion ($2.3 billion), up from HK$15.2 billion at the end of December.

A large portion of these paper gains are attributed to the MSPEA employees as carried interest and to the bank directly as an LP in the relevant fund. As a result, investment revenue for the investment management division reached $670 million in the fourth quarter of 2019, up from $82 million a year earlier. Annual revenue increased from $254 million to $1.21 billion.

“The investment that we’ve made was less than $50 million and the current investment value is approximately $2 billion. So we have not only the carried interest we also have a small LP investment in the fund and so the ownership and carry is going to be fluctuating until we have the underlying investment monetized,” James Gorman, the bank’s chairman and CEO, told analysts on an earnings call.

Feihe is one of China’s most prominent infant milk formula brands, ranking second among its domestic and international peers in terms of 2018 retail sales. The company sells its products through a nationwide network of 1,800 offline distributors with more than 109,000 points of sale. Two-thirds of revenue comes from high-end formula products, led by Astrobaby.

Feihe generated RMB10.4 billion ($1.5 billion) in revenue for the 12 months ended December 2018, up from RMB5.9 billion a year earlier. Over the same period, net profit rose from RMB1.16 billion to RMB2.24 billion. In 2012, the year before MSPEA invested via its third pan-Asian fund, revenue and net profit were $267.8 million and $21.2 million, respectively.

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• Topics
• Greater China
• IPO
• Consumer
• China
• Morgan Stanley Private Equity Asia