Domestic organic raw milk bibcock, focus on upstream farm management. The company is the largest producer of organic raw milk in China, with a share of 41% of the domestic organic raw milk market in 2020. It has created three major innovations: the desert management model that surpasses Israel, the highest quality organic milk in the world, and super-large modern circular agriculture. At present, Mengniu Group holds 29.99% of the shares in the company and is the largest shareholder of the company. by deeply binding downstream dairy enterprises, on the one hand, it can stabilize the uncertainty caused by the raw milk price cycle to production and operation, on the other hand, it can obtain the support of Mengniu's financial resources and share growth.
The upgrading of consumption promotes the continuous expansion of the high-end organic milk market. With the domestic per capita consumption level increasing year by year, the accumulation of personal wealth and the rise of the emerging middle class will promote consumption upgrading, providing soil for the promotion of high-end organic milk. Organic milk has higher and stricter standards from feed sources to cow feeding methods to milk treatment, so it has high cost and high price, which conforms to the psychology of consumers' pursuit of green and healthy food, and is the hot direction of liquid milk consumption upgrading.
The company is organically endowed with unique desert resources to build a moat of products.
China's holy pastoral animal husbandry is located in the Wulanbuhe Desert in Inner Mongolia and is recognized as the source of golden milk in the industry. As the development of desert resources becomes more difficult in the future, the industry barriers caused by geographical resources will be stronger. Based on this advantage, the holy shepherd is able to achieve the whole organic process from the pasture to the dining table, this model is relatively rare, which is conducive to ensuring the quality and safety of its milk, and the highest level of food safety is the core competitiveness of the holy pastoral.
Large-scale pastures have strong ability to resist risks and high operating efficiency. The production and operation mode of large-scale pastures is more standardized and scientific, so the risk of disease of dairy cows is lower, and it can be integrated and expanded by means of acquisition and continuous expansion to improve benefits. Feed prices have fluctuated greatly since 2020, and pastures with large scale, sufficient capital and strong bargaining power can better resist the rise in costs caused by fluctuations in raw material prices and ensure long-term stable production and supply.
Profit forecast: the company is expected to achieve a home net profit of RMB 5.43 million RMB 631 million in 2022-24, with a year-on-year increase of 15% and 16% respectively. The current stock price corresponds to PE 5.20x in 2023. We believe that the company focuses on organic milk, benefits from consumption upgrading and related product promotion of downstream dairy enterprises, the growth rate and profitability of sub-sectors are higher than the industry average, and has a strong ability to smooth the raw milk cycle; in addition, the company has a clear plan for 3-5 years, and the major shareholder Mengniu Group may give greater resource support, with strong operational certainty, giving 6.5x PE in 2023, with a reasonable value of HK $4.8 billion.
Risk tips: large fluctuations in raw milk prices, food safety events, lower-than-expected demand for organic milk, etc.