Main points of investment
Investment suggestion: we estimate that the company's revenue in 2022, 2023, will be RMB 27.18 billion in 2024, + 22.1%, 21.1%, 19.8%, respectively, and the net profit will be 14.7%, 2.94 billion, and-5.8%, 42.8%, 40.0%, respectively. For the first time, investors are advised to pay attention to the "prudent overweight" rating, with a target price of HK $2.70.
The revenue of each business has risen steadily: in the first half of 2022, the company's revenue rose 19.4% year-on-year to 8.71 billion yuan.
Raw milk revenue increased 19.9% to 5.22 billion yuan, accounting for 59.9% of the group's total income, an increase of 0.2% over the same period last year; feed business increased 17.3% to 3.18 billion yuan, accounting for 36.5% of the group's total income, down 0.7% from the same period last year; income from dairy supplies increased by 23.2% to 250 million yuan, accounting for 2.8% of the group's total income Breeding business increased by 115.3% to 60 million yuan over the same period last year, accounting for 0.7% of the group's total revenue.
Raw milk sales and per unit yield of adult cows increased steadily: in the first half of 2022, the company's raw milk sales increased by 21.5% to 1.128 million tons compared with the same period last year, of which sales of characteristic fresh milk increased by 23.7% to 271000 tons, and sales of high-quality fresh milk increased by 20.9% to 856000 tons. The per unit yield of adult cows in the company has increased steadily, with an increase of 1.8% to 11.4 tons compared with the same period last year, and the annual yield of adult cows in some pastures has exceeded 13 tons.
Affected by the fluctuation of raw material prices and milk prices, the company's gross profit margin is under pressure: in the first half of 2022, due to the rise in raw material prices and the decline in raw milk sales prices, the company's raw milk business gross profit margin fell 8.1pcts to 32.3% compared with the same period last year. The rise in raw material prices led to a decline in gross profit margin on the sale of feed, offsetting the rise in frozen semen gross profit margin. During the company's reporting period, the gross profit margin of the ruminant breeding systematic solution business fell 1.1pcts to 11.9% compared with the same period last year.
The cost control is good, and the net profit before the adjustment of the fair value of biological assets has declined slightly: in the first half of 2022, the company's sales expense rate decreased by 0.4pct to 3.2% compared with the same period last year; the management expense rate decreased by 0.9pct to 3.8% compared with the same period last year; and the financial expense rate rose to 5.9% year-on-year due to the increase in recognized interest and bank interest on convertible notes. Due to the influence of market factors such as the rise in raw material prices and the decline in the sales price of raw milk, the valuation of adult cows decreased, resulting in a profit and loss resulting from the change in the fair value of biological assets minus the cost of sales from 100 million yuan in mid-2021 to a loss of 852 million yuan in the first half of this year, which led to a decrease in the company's net profit from 76.5 to 220 million yuan compared with the same period last year, and the net interest rate decreased by 10.3pcts to 2.5 percent compared with the same period last year. However, before the adjustment of the fair value of biological assets, the net profit decreased slightly, by 3.4% to 1.05 billion yuan.
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.