Australian Premium's revenue in '22 was 7.79 billion, down 9.1% year on year, and net profit was 188 million, down 74% year on year. The gross profit margin in '22 was 43.5%, a year-on-year decrease of 4.9pct, and the net profit margin was 2.4%, a year-on-year decrease of 6.1 pct. Channel adjustments for milk powder are still ongoing, and goat milk powder has resumed growth. We expect the EPS to be HK$0.38/0.43/0.46 for 23/24/25. Maintain the “buy” rating with a target price of HK$5.7.
Report summary
Growth of goat milk powder resumed in the second half of the year. The revenue of goat milk powder in '22 was 3.59 billion, an increase of 6.6% over the previous year. Revenue fell 1.5% in the first half of the year, and the growth rate recovered to 14.7% in the second half of the year. After experiencing the smuggling incident for 21 years, goat milk powder has seen a marked improvement through active channels, and sales revenue has reached a new high. Aoyu's layout of upstream goat milk sources has established its competitive advantage in goat milk powder. In '22, the company completed a number of goat milk resource acquisitions in the Netherlands, adding 45,000 tons of fresh goat milk supply every year. A concentrated goat whey facility has also been built, further consolidating its leading position in the goat milk field.
Milk powder continues to clear stocks and has rebounded month-on-month. The revenue of milk powder in '22 was 29.22 billion, down 28% from the previous year. Among them, there was a 37% year-on-year decline in the first half of the year, narrowed to 19.6% in the second half of the year, and revenue in the second half of the year increased significantly from the first half of the year. Affected by increased competition in the industry, terminal sales are under pressure, so the company took steps to actively adjust channels for HypnoKay 1897 and reduce channel inventory. According to Nielsen research, HypnoKai 1897's market share increased 0.2 pct year over year. At the same time, the company continues to launch a series of new products, including HypnoKai 1897 Zhishu, Future Edition, Joy, and Premium Care.
Higher costs and higher discounts reduce gross profit margins. The gross profit margin in '22 was 43.5%, a decrease of 4.9pct over the previous year. On the one hand, this is because under fierce competition, companies make certain discounts to help with sales; on the other hand, high inflation has also lowered gross profit margins.
Yili has become the controlling shareholder, and synergies can be expected. Yili Co., Ltd. (600887.SH) acquired 59% of Aoyou's shares in the first half of the year, became its controlling shareholder, and increased the company's capital by about 740 million dollars. Erie and Australia will exchange experiences and create collaboration in various aspects of the industrial chain, channels, brand marketing, etc.
Taken together, we believe that despite increased competition in the industry, leading companies are still expected to enjoy the growth brought about by increased concentration. In the short term, company fundamentals are gradually breaking out of the bottom. We expect net profit for 23/24/25 to be RMB55/ 67/72 million, respectively, and the corresponding EPS of HK$0.38/0.43/0.46. Maintaining the “buy” rating, considering market sentiment and fundamental factors, the target price was lowered to HK$5.7, up 53% from the current stock price.
Risk warning: The decline in the birth population exceeds expectations; industry competition intensifies; serious safety incidents have occurred in the industry or company.