Recommended logic: raw milk prices are expected to bottom out and pick up: the domestic demand for raw milk is increasing by 5% and 10%, supply-side domestic and international production capacity is accelerated, the impact of international large packages of powder import slows down, and domestic large packages of powder stocks are gradually cleared, and the relationship between supply and demand has improved significantly. Domestic scale pastures have entered a large-scale loss, the price of raw milk can not fall. Fonterra auction prices began to rise, leading to a rebound in domestic raw milk prices. 2. The company's fresh milk and dairy business will fully benefit from the rebound in raw milk prices and full performance flexibility, and the beef cattle business is expected to cultivate new profit growth points in the future.
The relationship between supply and demand has improved, and the price of raw milk is expected to bottom out and pick up: at present, the downstream domestic demand for raw milk maintains a growth rate of 5%, 10%, which is relatively stable. The supply side is gradually shrinking: 1. Since 2015, milk prices have fallen below the cost line of retail farmers, and a large number of retail dairy farmers have chosen to kill cattle and sell meat, accelerating their withdrawal; large-scale pastures have entered a stage of large-scale losses in the second quarter of this year, and the proportion of abnormal elimination has increased significantly, and the number of domestic dairy cows is gradually decreasing. 2. The impact of international large packages of powder (mainly New Zealand) slows down: in the face of sluggish global dairy market demand, New Zealand, Australia, Argentina and other countries have reduced their production one after another. among them, New Zealand accounted for more than 60% of global raw milk exports. New Zealand's full-fat milk powder production was-6% year-on-year in 2015, skim milk powder production was-11% year-on-year, and raw milk production showed a downward trend. International raw milk supply is expected to bottom out in the future (Fonterra auction prices have risen by more than 50% recently). 3. Domestic large packages of powder inventory has been gradually cleared: the inventory of large packages of powder in the leading domestic dairy enterprises has dropped sharply, and the current stock is about 50-100000 tons, which is significantly lower than the previous record high of 40-500000 tons, and the domestic low-price large-packet powder inventory has been gradually cleared out. The supply side shrank further. 4. The price of domestic fresh milk lags behind the auction price of Fonterra by 3-6 months, and the price inflection point is expected in the first quarter of next year.
With the simultaneous development of milk and meat, the dairy business has benefited from the rise in the price of raw milk, and beef cattle are the only listed company in the two cities with export raw milk, which will directly benefit from the rise in raw milk prices. short-term performance flexibility; 2, dairy business benefits from the cost advantage effect of rising raw milk prices, optimistic about the future strength of the internal and external markets in Xinjiang. Garden Dairy enjoys a high reputation in Xinjiang. Due to the low-price competition strategy of dairy products, its profitability has declined sharply since the second half of 2015. As the competition of raw milk prices slows down, the future performance will rise again. Ximu dairy industry outside Xinjiang, is currently in a period of market development, the cost is high, resulting in a large loss in dairy business, waiting for the reduction of expenses outside Xinjiang. 3. The company actively develops the business of beef cattle outside Xinjiang, and the acquired subsidiary Zhejiang Yiheng Animal Husbandry Infrastructure is expected to be completed by the end of 2016 and is expected to start importing live cattle next year.
With the increasing number of live cattle imported into Australia and the completion of sales channels in the Yangtze River Delta, beef cattle business will usher in explosive growth in the future, becoming a new profit growth point for the company.
Profit forecast and investment advice: the company's income is expected to grow at a compound rate of 22% from 2016 to 2018, and its net profit is expected to grow at a compound rate of 58%. With the stabilization and recovery of raw milk prices, the company's performance flexibility will be highlighted. Cover for the first time, giving a "buy" rating.
Risk hints: milk price risk, livestock disease risk, market development outside the border or not up to expectations.
