Main points of investment
Event: Western animal husbandry had revenue of 665 million yuan (+ 10.8%) in 2016, net profit of-52 million yuan (- 325.9%), revenue of 164 million yuan (+ 110%) in the fourth quarter and a loss of 6 million yuan for every 10 shares. 2017Q1 has revenue of 154 million (+ 9.1%) and net profit of-18 million (- 35.3%).
The price of raw milk is low and the output decreases slightly. Since 2016, fresh milk has been produced of 36300 tons (- 1.8%). Due to the impact of imported large packages of powder, the price of domestic raw milk is low, with an average price of about 3.47 yuan / kg, and it is estimated that the business of self-produced raw milk has suffered a small loss; with a revenue of 56 million yuan, the company has undertaken part of the obligation to protect the income of local dairy farmers, and the purchase price has not been able to enter the market, resulting in a small loss in the purchased fresh milk business. Sales of dairy products are 45900 tons (- 3.9%), and Ximu Dairy, a subsidiary, is still in the period of integration, affecting the company's performance of 42 million yuan. Feed sales are 66400 tons (+ 32.1%), with an estimated small profit.
Milk prices were lower than expected in the first quarter, and the launch of new dairy products pushed up three fees. Affected by the high-yield season in New Zealand and the decline in Fonterra milk powder auction prices, domestic raw milk prices were lower than expected in the first quarter, and the company's raw milk performance was low. In addition, Ximu Dairy listed a number of liquid milk, the early market expansion resulted in a 5.7% increase in sales costs, eroding profits to a certain extent.
The upward trend of raw milk remains the same, and the rise in volume and price brings great flexibility. New Zealand high-yield season is coming to an end, reflecting the latest Fonterra full-fat and skimmed milk powder auction prices rose across the board, the industry accelerated upward trend remains unchanged. The company expects to add 3980 new cows in 2017, producing 46200 tons of fresh milk (+ 27.3%). If milk prices rise as scheduled, benefiting from the logic of rising volume and price, the company's performance is very flexible. In addition, with the completion of the integration of Ximu dairy industry, new products have been laid out one after another, and the dairy sector is expected to contribute profits.
Investment advice: we believe that the company is about to go through the labor pains of low milk prices and subsidiary integration, and the follow-up raw milk business is expected to rise in volume and prices, and the performance of dairy products is likely to improve. It is estimated that the net profit for 17-19 years is 50 million, 95 million and 156 million respectively, and the corresponding PE is 49 times, 26 times and 16 times respectively.
Risk hint: milk prices fall; sales of new products fall short of expectations
