Investment advice: buy rating with a target price of HK $59.21. Taking history as a mirror, China Mengniu Dairy's excess income comes from performance growth. At present, the company's revenue growth rate increases, sales expense rate decreases, profits are released, and it is in the first year of the 5-year strategic period of doubling performance. Both long-term and short-term performance can be expected, and the investment value is prominent. Taking into account the valuation level, historical valuation trend and future performance trend of the liquid milk company, we give the company a target price of HK $59.21 according to the PE valuation method, corresponding to a PE of 35.0 PE 28.3x shock 22.7x for the period from 2021 to 2023; maintain the buy rating; and advise investors to pay active attention.
Review: performance-driven stock prices. Since the listing of the company, the annualized excess return (compared with the Hang Seng Index) is 19.3%, which is mainly driven by performance; including performance cashing (2005.7-2007.10, 2017.8-2019.8 two rounds of long bull market), closing mergers and acquisitions or consumption upgrading expectations (2013.5-2014.3 acquisition market, 2020.3-2021.1 promotion of dairy consumption after the epidemic).
Short-term performance improvement: 1), revenue growth rebounded: 2021H1 + 22.3% year-on-year, expected to be 15% annual sales 2), gross sales gap widened: first, the special case of destocking in 2020 to increase sales expenses is no longer, and the advertising expense rate is shrinking, and the sales expense rate is expected to decline in 2021; second, the 2021H2 product structure continues to upgrade, the increase in raw milk prices narrows, and the pressure on gross profit margin decreases for the whole year. 3) profit release: OP Margin, EPS and ROE are expected to increase in 2021.
In the first year of the five-year strategy, the long-term performance can be expected: industry opportunity + corporate strategy + incentive mechanism + deepening of milk source & product & channel layout. help the company to increase revenue, upgrade product structure (increase gross profit margin), increase the utilization rate of sales expenses (lower expense rate), and then increase profits. Among them, binding the upstream industrial chain to develop high-end UHT milk and fresh milk is a bright spot of the company's performance growth; multi-category power + channels + brands to strengthen the overall moat.
1) structural opportunities in the industry: high-end normal-temperature milk, high growth of fresh milk and cheese, and upgrading of consumption in the sinking market.
2), company strategy: multi-category layout; the target is to double the performance in 2025 compared with 2020 (CAGR 14.9%). The revenue of fresh milk, cheese and milk powder all exceeded 10 billion yuan, with CAGR of 48.2%, 28.4% and 17.0% respectively.
3) Corporate governance: decentralized ownership structure + experienced management + department system + equity incentive motivation.
4), raw milk supply: the shortage of raw milk in the industry, strong upstream control of the company, and the construction of competition barriers. The company controls modern animal husbandry (leader) and Chinese holy animal husbandry (organic milk faucet), strategic cooperation milk source accounts for 40%, supplying high-end product production. Advantages: pasture capacity expansion + milk source regional balanced fresh milk business + excellent raw milk quality to help high-end products.
5) products & channels:
Normal temperature milk: performance basic plate. The upgrading of the product structure (the proportion of Trensu in white milk, dream cover and organic milk, and PET bottle) + channel barriers (channel sinking and intensive ploughing, effect gradually enhanced) + Z-generation marketing brings performance growth, volume and price rise.
Fresh milk: blue sea track (consumption upgrade) + cold chain logistics popularization + milk source advantage (regional balance, high quality, desert organic milk IP) + daily fresh words, high income growth. The business strategy is different from the regional dairy enterprises and imported fresh milk, the business scope and milk source are better than the former, and the performance-to-price ratio of the products is higher than the latter.
Cheese: Eichen Dawn + Miaoke Lando two major brands, followed by the integration of Miaoke Lando, Miaoke Lando market occupies the first place, cheese bar + Masuri cheese two single products enjoy the rapid growth dividend of remade cheese.
Milk powder: Yashili + Bellamy, high growth of non-infant powder + high-end infant powder. At present, Yashili accounts for more than half of adult milk powder, benefiting from the increase in demand brought about by an aging population.
Risk tips: 1) food safety problems; 2) the price of raw milk rose more than expected; 3) terminal sales were lower than expected; 4) the cost exceeded expectations.