The rise in short-term raw milk prices has slowed, but the tight balance between supply and demand remains. Milk prices are expected to increase in single digits next year compared with the same period last year, while the pressure on the company's feed costs has eased. Steady stock column volume has contributed to the company's rapid growth in the second half and next year. The deep binding of upstream and downstream supports the stability of milk prices & the company plans to double its stock column in five years and the company's performance grows steadily in the short and medium term, maintaining the "buy" rating.
Milk prices are stable and high in the short and medium term-the stock of dairy cows has doubled in 5 years, and the company's raw milk revenue is expected to maintain good growth. (1) Milk prices: according to the statistics of the Ministry of Agriculture and villages, Q1/Q2/Q3 milk prices rose 12%, 19%, 16%, and the increase in milk prices tended to moderate. In the latest week, the year-on-year increase in milk prices narrowed to 9.7% (as of October 13, the same below). We judge that the short-term raw milk is still in a tight state of supply and demand, while the interests of the upstream and downstream of the industry are deeply bound to support the stability of milk prices. Milk prices are expected to maintain low single-digit increases in 2022, unchanged in 2023 and flat or slightly lower in 2024. (2) Milk quantity: stock column and per unit yield jointly drive milk volume expansion: ① as of 2021H1 company stock column 376000, we expect to stock 400000 head by the end of the year, the company plans to stock 800000 cows by 2026, corresponding to 5-year CAGR 15%; ② management + technology promotion, the company is expected to increase the annual per unit yield by about 3%.
The rise in feed prices slowed down, and the pressure on the company's raw milk cost gradually eased. According to the statistics of the Ministry of Agriculture and Village, the price of soybean meal Q1/Q2/Q3 increased by 17%, 12%, 16%, and the latest weekly price increase narrowed to 15%. The corn price Q1/Q2/Q3 also increased by 38%, 36%, and 23%, and the latest weekly price increase narrowed to 16%. Corn prices are expected to maintain a downward trend in the future. Although the price of silage purchased in advance next year will increase by 20% to 30%, considering the recent decline in corn prices-the rise in soybean meal prices has slowed down, it is expected that the overall cost of raw milk per kilogram of the company next year may maintain this year's level, and the cost-side pressure will continue to ease.
The company's revenue and profit in the second half of the year are expected to continue the trend of high growth in the first half of the year. Taking into account the amalgamation effect of H2 Fonterra pasture (the acquisition was completed in March) and the increase of H2 milk price by about 6% compared with H1, we predict that H2 raw milk income will increase by about 40% (H1 + 36%), year-on-year milk price + 11% and milk volume + 25% 30% year-on-year. ② enters H2 feed cost side pressure is similar to H1, gross profit margin is expected to be flat Due to the increase in the introduction of H2 reserve cattle by the company, ③ expects the "fair value of biological assets less variable cost of sale" to change from positive to negative to-200 million in 2021; ④ enters H2 management and sales rates continue the downward trend in the first half of the year; and ⑤ 's "change in fair value of convertible bonds" is expected to have a negative impact on profits in the second half of the year. To sum up, we predict that the company's H2 income / adjusted net profit will increase by 30%, 40%, 75%, 85%, and the annual income / adjusted net profit will increase by 35%, 35%, and 65% respectively.
The whole industry layout & national layout & fine management & R & D technology builds the core barrier of the company. ① whole industry chain layout: in addition to raw milk business, the company also laid out breeding and feed business, which can ensure the high quality of dairy cows and raw milk, while resisting the risk of industrial fluctuations; ② national layout: the company's milk source base industry covers the widest, currently covering 20 provinces, the national milk source layout also supports the company to enjoy a certain bargaining power. ③ fine management: the company takes the lead in introducing TPM system in the global animal husbandry industry, widely implements lean operation, and continues to increase unit yield and optimize cost; ④ technology leadership: with strong technology R & D and innovation capabilities, the company broadens the category of characteristic raw dairy products, develops new high-tech feed products, and cultivates high-quality cattle.
Risk factors: downward prosperity of the industry; repeated risk of epidemic; risk of environmental protection supervision.
Investment suggestion: after considering the recent trends of the company's cow stock planning, milk price and feed cost, the new core net profit EPS for 2021-2023 is estimated to be 0.61 yuan 0.77max 0.92 yuan (core profit = home net profit excluding changes in the fair value of convertible bonds, one-time expenses such as listing expenses) Adjust the EPS forecast of 2021 / 2023 to 0.51 / 0.72 / 0.92 (the original forecast is 0.56 / 0.71 / 0.81). With reference to comparable valuations in the same industry, the target price is maintained at HK $9.50, corresponding to the 2021 PE valuation of 10 times, maintaining the "buy" rating.