According to market reports, Yili Co., Ltd. (600887.CN), the leading Chinese dairy industry, is researching and buying Ausu Dairy (01717.HK). Ausu's stock price was last reported at $8.7 on Wednesday. Over the past five days, Ausu's stock price has risen by more than 16%, and Ausu's latest market value has risen to 14.9 billion yuan. Ausu is the main manufacturer of infant formula.
According to “Bloomberg,” quoting people familiar with the matter, Erie has been discussing financing matters with banks about the potential acquisition of Australian Premium. Relevant discussions are still ongoing. It is uncertain whether the purchase will be officially proposed, and it is also attracting participants from other industries. Relevant Ausu sources, on the other hand, responded that they had noticed the rumor. The information was subject to the disclosure announcement, and everything in the company's production and operation was normal.
Lyon Securities said that Ausu is the leader in the Infant Milk Formula (IMF) market. If the rumor is true, this potential acquisition will be a double slump. Erie can increase its IMF market share by more than 10% and optimize the product structure by utilizing Australia's leading position in the IMF market.
According to Ausu's data, the company had an IMF market share of about 6.3% in 2020, ranking first in IMF sales since 2014. The company provides goat milk powder products through its two major brands, Kabrita and Neolac, accounting for 40% and 45% of its total revenue for the full year of last year and the first half of this year.
Ausu's interim profit up to the end of June this year was about 590 million yuan, up 45.3% year-on-year. Revenue for the period rose nearly 11% to about 4.27 billion yuan. The net profit margin for the first half of the year was about 15%. The profit for the full year of last year was RMB 1 billion, and the net profit margin for the period was 13%.
According to performance data, the gross margins of Erie, Erie Milk Powder and Australian Premium for the first half of this year were 38%, 43%, and 50%. If Erie successfully buys AU Premium, which has a higher gross margin, it will help improve profitability. According to market reports, AU's purchase price of 8.51 yuan is equivalent to the bank's forecast price-earnings ratio of 8 times next year. The compound annual growth rate from this year to 2023 is about 15%, and the valuation of about 14 billion yuan (about 1.8 billion US dollars) is not too high.
Leon believes that even after a wave of mergers and acquisitions in the dairy industry, it is unlikely that the infant formula market will have centralized procurement and pricing coordinated by the government. This is what investors are worried about, but the bank agrees that due to the weak investment climate, the stock prices of IMF market participants are underestimated.
Lyon also pointed out that China Feihe (06186.HK) is the bank's first choice for covering dairy stocks. The price-earnings ratio is expected to be about 11 times next year, and the compound annual growth rate from this year to 2023 is about 22%. Yes, while H&H International Holdings (01112.HK) and Yashili International (01230.HK) are the dark horses of the Chinese consumer sector.
The target price of Lyon to China's Feihe is 30 yuan, which is equivalent to a 12-month forward price-earnings ratio of about 25 times. This means that the capital gain growth ratio is 1 times that of the MSCI China Consumer Goods Index, which is close to the average price-earnings ratio of the MSCI China Consumer Goods Index over the past 5 years. This reflects Feihe's strong brand value among domestic brands and faster growth than its peers.
Recently, however, due to negative views on newborn babies, uncertainty about overseas business expansion, and food safety issues, the company's stock price is still hovering around the 10-antenna level of 13 yuan.
Leng Youbin, chairman of China Feihe, said in June of this year that due to the effects of vaccination, many mothers and fathers cannot become pregnant within 6 months, and it is expected that milk powder sales will experience a cliff-style decline in the next year or two. As soon as this statement came out, China's Feihe stock price continued to decline; it was only recently that it bottomed out and stabilized.
According to an earlier report published by HSBC, with the number of newborns falling 16% last year and the potential negative impact of vaccination, the growth of the infant formula market may slow down, but the bank believes that under the strong growth of infant formula, the life cycle of the company's customers should be extended, and new products can be supported by new customers. It is estimated that Feihe can achieve 26% year-on-year revenue growth this year, with a compound annual growth rate of 22% from this year to 2023, but considering higher marketing expenses to promote sales, the target price reduction target of 26.2 to Hong Kong Yuan maintains “buy” reviews Level.
Text: Xiaoping