Main points of investment

Our view: Youran Dairy is the largest pasture company in China. by the end of 2021, the company has operated 73 modern pastures in 16 provinces across the country, and new farms have been built in Henan, Shandong, Anhui and other places. The company relies on Yili shares, the high quality of raw milk, the scarcity of characteristic milk resources, continue to benefit from the upgrading of dairy consumption. At the same time, the company realizes the layout of the whole industry chain in the upper reaches of the dairy industry (breeding, forage, raw milk production), which is conducive to business coordination, cost reduction and efficiency. Investors are advised to pay active attention to it.

Improvement in operating performance: in 2021, the company's revenue was + 30.3% to 15.35 billion yuan compared with the same period last year; when the gross profit margin was relatively stable, the gross profit driven by revenue growth was + 30.3% to 4.69 billion yuan; in the same period, the company's net profit was + 16.2% to 1.56 billion yuan compared with the same period last year. The growth rate is lower than the gross profit growth rate, due to the increase in financing scale and cost.

The two major businesses have greatly increased: the company has two major businesses: raw milk (high quality raw milk, characteristic raw milk) and systematic solutions for ruminant breeding (feed, dairy supermarket breeding consumables, breeding products). The revenue in 2021 was 95.4 yuan and 5.81 billion yuan respectively, accounting for 62.2% and 37.8% respectively, and the income was + 36.4% and + 21.3% respectively compared with the same period last year. The first advantage is that diversified operation increases the profit point and reduces the risk, and the other is the coordination of the whole industry chain in the upper reaches of the dairy industry.

1) Raw milk: the production capacity is expanded, and the quantity and price are both increased. In 2021, the growth of raw milk sales revenue is driven by unit price and production and sales. Raw milk sales increased: in 2021, the company's raw milk sales were + 27.3% to 1.947 million tons, the first in the country, of which 91.8% of the raw milk (by sales) was sold to Yili shares. In the same period, the company's sales of characteristic raw milk and non-characteristic raw milk were 47.4 and 1.473 million tons respectively, accounting for 24.3% and 75.7% respectively, and the sales volume was + 19.7% and 29.9% respectively compared with the same period last year. The reason for the increase in raw milk sales during the period is the increase in the stock size of adult cows: by the end of 2021, the stock size of adult cows was 416000, year-on-year + 35.0%, of which adult cows were + 30.0% to 205000 compared with the same period last year. Herd growth is due to population breeding and the consolidation of Fonterra Chinese farms; second, the per unit yield increase: in 2021, the annual per unit yield of adult cows (except Jersey cattle) is + 3.8% to 10.9 tons per head.

Increase in unit price of raw milk: due to higher feed costs and higher demand for raw milk, the average selling price of raw milk in 2021 is higher than that of the industry as a whole, due to the high quality of raw milk and the scarcity of characteristic milk.

2) systematic solution of ruminant breeding: feed business is the core. In 2021, the company's income from forage business, dairy supermarket breeding supplies and breeding products was 53.5,4.1 and 70 million yuan respectively, which was + 21.2%, + 21.0% and + 35.1% respectively compared with the same period last year.

The growth of feed income is due to the development of concentrate market and customers. through the newly put into production of Shandong feed production base, the company radiates the markets of Shandong, Anhui and Jiangsu provinces, and the annual feed production capacity increases by 400000 tons; second, the scale of planting and trade of roughage (mainly alfalfa and oatgrass) is expanded; the third is to take the lead in establishing a standardized technical service program for raising beef cattle and sheep to promote feed sales. In addition, at present, the company has feed production bases in Heilongjiang and Hebei; at the same time, it has put into production the Wulanchabu premix production workshop with leading scale and high precision, which is used to produce precision nutritional feed.

The gross profit margin is stable, the financial expense rate increases, and the return net profit margin decreases slightly: the company's return net profit margin in 2021 is-1.2pcts to 10.2% compared with the same period last year, mainly due to the increase in financial expense rate. 1) Gross profit margin: the company's overall gross profit margin in 2021 was 30.6%, which was the same as the same period last year; among them, the gross profit margin of raw milk and ruminant breeding system solutions was 41.4% and 12.8% respectively, which was-1.4% and + 0.1pcts respectively compared with the same period last year. The decline in gross profit margin of raw milk is mainly due to the rise in feed costs, Fonterra China (its gross profit margin is on the low side); the decline in gross profit margin is less than that of the same industry, first, the company realizes the layout and internal coordination of the industrial chain upstream of raw milk; second, the proportion of high-end characteristic milk is high, and the product premium is high; third, the market research and judgment is accurate, and the purchase of feed raw materials is timely. 2) expense rate:

In 2021, the company's sales and management expenses were well controlled, with the sales expense rate from-0.2pcts to 3.6% and the management expense rate from-0.9pcts to 5.4%. In the same period, the company's financing cost was from + 136.4% to 730 million yuan, and the financial expense rate was from + 2.1pcts to 4.8% year-on-year, due to the increase in interest on convertible bills and bank borrowing.

Risk tips: product safety problems, the quality of raw milk is not up to standard, the cost of raw materials is higher than expected, the price of raw milk is lower than expected, cattle diseases.