2021H1's income / return net profit increased by 22% to 45.9 billion / 2.95 billion yuan. In the context of the rapid rise in raw milk prices, the company can better resist cost pressure by adjusting its product structure & reducing promotional purchases and gifts.
In the long run, Mengniu proposes to "create a new Mengniu" during the 14th five-year Plan period; in the short term, as the rise in milk prices slows down, the peak cost pressure may have passed, and it is optimistic that the company's profitability will continue to release in the future. Maintain "buy"
Rating.
2021H1's income / return net profit increased by 22%, 143% to 45.9 billion / 2.95 billion yuan, with a higher-than-expected growth rate. With a low base last year, the company achieved an income of 45.91 billion yuan in the first half of the year, + 22.3% year-on-year, and a net profit of 2.95 billion, + 143.2% compared with the same period last year. The main reasons for the sharp increase in net profit compared with the same period last year are as follows: 1) the company's marketing rate and 2.8pcts promoted the gross sales difference to increase from 10.2% to 10.2%. 2) the expenditure on donation dropped from 4.5 yuan in the same period last year to 15 million yuan in H1 this year.
With the strong growth of white milk and the rapid release of new products, under the pressure of the rising cost of raw milk, the company keeps its profitability basically stable through product structure upgrading & adjustment and promotion.
On the revenue side, the demand for liquid milk is high-last year's low base, the company's business maintained strong growth, achieving double-digit growth. 1 liquid milk: 2021H1 liquid milk income 32.57 billion yuan (year-on-year + 21.1%). Specific product breakdown: a) White milk: under the health and nutrition consumption habits cultivated during the epidemic, white milk continued to maintain strong growth in the first half of the year, and the company's basic white milk / Terun Sutong increased by 20% and 40%. Among them, Terun Su benefited from the strong growth of the Fantasy cover series. B) fresh milk: after two consecutive years of doubling, fresh milk income continued to maintain a rapid growth rate of 120% in the first half of the year, with 2021H1's fresh milk share rising to 13.1% (202011.2%) C) low-temperature acid business: due to the impression of excessive beverage consumption of yogurt, the demand of low-temperature yogurt industry shrank in the first half of the year, but the company's low-temperature business still recorded a growth rate of 7%. Among them, high-end low-temperature milk products Youyi C and Guanyi milk maintained a growth rate of 20%; d) room temperature yogurt: the company's room temperature yogurt income increased by more than 20% in the first half of the year, and room temperature yogurt is expected to grow in single digits year-on-year. 2 milk powder: the company's milk powder revenue in the first half of the year was 2.55 billion yuan (year-on-year + 34.8%), of which Yashili income increased by 31.3% to 2.17 billion yuan. Yashili adult milk powder became a new business growth point in the first half of the year, with sales rising by 90%. Bellamy suffered a year-on-year decline in revenue in the first half of the year due to the impact of the negative impact of the epidemic on purchasing channels in Australia. 3 cold drinks:
Benefiting from the effect of Aixue, a leading ice cream brand in Southeast Asia, the company's cold drink revenue increased by 34.8% to 3 billion yuan in the first half of the year. 4 Cheese: the company's other business income mainly based on cheese increased by 98.2% to 910 million yuan in the first half of the year, of which cheese revenue increased by 68%. The retail end developed the first Ericsson organic cheese bar and room temperature leisure cheese products. Food and beverage side to explore catering, new baking, new tea and other industry opportunities.
On the profit side, the 15% increase in the price of raw milk in the first half of the year had a negative impact on the company's gross profit margin (4pcts), but through product restructuring, the company's gross profit margin fell only 0.8pct to 38.2% year on year. Due to the high cost pressure and high industry demand, the company reduced its sales promotion and gift activities in the first half of the year, pushing sales rates down by 2.6pcts to 28.1%, which in turn pushed the gross sales margin up by 1.8pcts to 10.2%. The company's operating profit margin rose to 6.1% in the first half of the year, which was basically the same as in 2019.
Short-and medium-term outlook: the most difficult stage of raw milk price pressure may be over, brand investment, product innovation, channel ploughing will be the main means for the company to promote performance growth. Raw milk has returned to the upward cycle since 2020Q2, with 2020H2 milk prices accelerating and 2021H1 milk prices rising 15 per cent, resulting in significant year-on-year pressure on company costs and gross margins.
Looking forward to the second half of the year, the upward trend of milk prices has slowed down, and the peak cost pressure of the company may have passed. Considering that the short-term supply and demand of raw milk still maintains a tight balance, and the cost of milk price is expected to remain high, while the company focuses on product innovation, channel sinking, tapping growth opportunities in advantageous areas, reducing reliance on promotional purchases and gifts, and supplemented by product structure upgrading and adjustment, the company's profitability is expected to maintain an upward trend in the future.
Risk factors: food safety risk, policy change risk, industry prosperity decline risk.
Investment advice: although the price of raw milk increased significantly in the first half of the year, the company effectively resisted the cost pressure through measures such as product structure optimization and cost reduction. We maintained the company's 2021 EPS forecast of 1.32 yuan, and raised the 2022 EPS forecast to 1.62max 2.02 yuan (the original forecast was 1.61x2.00 yuan). The current price corresponding to PE is 29-24-19 times. With reference to the comparable company valuation, the 2022 target PE is valued at 28 times, corresponding to the target price of HK $55, and the "buy" rating is maintained.