Primary animal husbandry is a China Dairy Animal Husbandry Company for the production of over-fermented raw milk. As of June 30, 2013, there were 2 super-large ranches (i.e. Keli original Ranch and Phase I) and 2 large-scale ranches (i.e. Gannan Meimei Ranch and Kelumei Ranch). As of December 31, 2012, the four farms of the market had a total of 37000 cows and produced about 460 tons of raw milk per day. In 2012, the average annual milk yield per cow reached 8.9 tons, and the average number of Chinese industries in the same year was about 62% higher. According to the size of the herd and the output of raw milk, the herd ranks fifth and fourth respectively in China. In the past record period, the top five customers of the collection were Yili, Mengniu, Bright Dairy, Guangming Dairy and Abbeit, and most of them were Chinese dairy manufacturers.

The company is in charge of

(1) according to International Monitoring International, according to safety standards and quality standards, the raw milk collected is the highest in China's dairy market. According to the main milk consumption index, the quantity of raw milk collected is lower than that of the League standard and the Chinese standard, so it can be sold at a high price. In 2012, the average sales of raw milk reached 4100 yuan per capita, and the average sales of raw milk in China's major producing areas were about 25 per cent higher. The customers of China's well-known dairy manufacturers all produce high-end dairy products from a collection of raw milk, such as the special products of Mengniu and the star sails of Mengniu dairy collection; (2) the pastures of Mengniu are located in the Heidi River and Songnen Plains in some areas of Jilin Province. Songnen is in the same position as the world's first-class dairy production areas (such as Brittany, France and Hokkaido, Japan). Dry weather and fresh milk are used to mix dairy cows and produce raw milk. At the same time, it has also benefited from the support provided by the Heijiang provincial government, such as land, loans with interest rebates, and government subsidies; (3) the ownership and purchase of four large farms and 38788 dairy cattle enjoy economic scale benefits; (4) solid customer relations have been established with some leading dairy companies in China. In 2012, the market sold a total of 122435 tons to China's three major dairy manufacturers, Mengniu, Yili and Guangming Dairy (21.8% of the total market share in 2012).

Overview of the industry

The animal husbandry of dairy cattle in China continues to be very scattered, mainly led by individual farms with less than 20 cows. However, due to the high efficiency and high yield of large-scale farms, the Chinese government introduced more favorable policies to these farms after the melamine incident in 2008 and paid more and more attention to the supply of safe raw milk. This has led to an increase in the number of large-scale farms in recent years. According to Business International, the number of large ranches rose from 453 in 2008 to 1133 in 2012, with a compound annual growth rate of 25.8 per cent. Large farms, which accounted for less than 0.1 percent of China's total pastures in 2012, accounted for 16.1 percent of China's total raw milk output in the same year. In addition, after the melamine incident in 2008, many farms and small farms slaughtered or sold cows, leading to a corresponding increase in the number of dairy cattle in China. However, with the growing number of dairy products in China, the number of cows increased from 123 million in 2008 to 145 million in 2012.

According to the statistics of International and China's dairy industry in 2012, China's raw milk production grew rapidly at a complex annual growth rate of 20.0% from 2000 to 2008, partly because the average annual milk yield per cow increased from 2.6 years in 2000 to 4.6 years in 2008. The melamine incident in 2008 reduced demand and led to a short drop in raw milk production in 2007. Raw milk production gradually rebounded from 2009 to 2012, and the annual milk yield per cow rose to 5.5 grams in 2012. In addition, in terms of raw milk production, the market share of large farms increased between 2008 and 2012. According to Business International, raw milk produced by large farms accounted for 6.0% of China's total raw milk output in 2008; by 2012, this number has increased to 16.1%.

The input income of large-scale dairy animal husbandry is relatively high, which requires huge investment, management experience and government support. As farms that intend to produce raw milk that meet high safety and quality standards follow strict regulations and procedures at all stages of the raw milk production process and select cows according to specific genetic specifications, small farms produce raw milk at a very high cost. Large-scale pastures need to use modern technology and advanced animal husbandry methods, in order to achieve high efficiency and high yield level, to achieve high milk yield and yield, and to further increase the market share through further recharge. As a result, only a small number of farms in China are capable of producing raw milk, so the market in which they are sold is not regarded as a fierce market. In addition, in terms of land area and capital investment requirements, super-large pastures are higher in large-scale farms with less than 10000 cows. As a result, the market where super-large ranches operate is less expensive.

Profit ability and duty number

Calculated on the basis of past records over the past three years, the income of the market has increased from 30 million yuan in 2010 to 6.891 million yuan in 2012, with a compound annual growth rate of 4692.7%. The annual growth rate has increased from 81 million yuan in 2010 to 2.097 million yuan in 2012, representing a combined annual growth rate of 408.8%. It is worth noting that the substantial increase in market income and profits in the past financial year is mainly due to the substantial increase in the size of the United States Ranch in Gannan and Kemei Ranch in South Gansu in 2011. During the period, the price of raw milk increased, and the gross profit margin also increased from 33.5% to 37.8%.

Collection purpose

HK $2622 (based on the median development price of HK $2.84 million per share) from this collection will be used for the following purposes: about 75 per cent (or about HK $1967) will be used to finance the construction of five new pastures scheduled for completion by the fourth quarter of 2015, namely, Jiao Ranch, Baiquan Ranch, Keyong Ranch, Hanhai Ranch and Quartet Ranch; about 15 per cent (or about HK $39.3 million) will be used for the development of upstream pastures. And about 10% (or about HK $2.62 million) will be used for financial assistance and general business purposes.

Valuation

The collection does not provide a profit forecast for the 2013 political year. According to the figures of the 2012 political year, the historical price-to-earnings ratio and historical price-to-earnings ratio are 36.5-46.7 and 2.6-2.8 times respectively. For the same industry, such as 6863.HK, the historical P / E ratio of 1117.HK is 47.2x, and the forward P / E ratio is 26.8x. We believe that after the melamine incident in 2008, the safety of dairy products has become a top priority in the development of the industry. As can be seen from the development of government policies and industries, ways to promote food safety and restore consumer confidence include (I) the development of large dairy farms; (ii) the vertical integration of value stores; (iii) ensuring the high consumption of raw milk; and (iv) the ability to provide high-end dairy products. Since the source of milk comes from the upper reaches, China's "Dairy Industry Policy" also stipulates that the amount of milk produced by the milk source base for new dairy products processing projects is not less than 40% of the processing capacity. As a result, companies with upstream services tend to have a lot of interest. We are optimistic about the future growth of the market. Compared with the same industry, the output of raw milk and raw milk is lower than that of the same industry (497 thousand tons of raw milk for modern animal husbandry, 388.7 thousand tons for mountain milk, 168.0 thousand tons for farm milk, 176.3 thousand tons for modern animal husbandry, 119.0 thousand tons for Langshan milk, 37.0 thousand tons for herd). The future growth depends on the progress and effectiveness of the construction of the five new pastures (including Jiao Ranch, Baiquan Ranch, Ke Yong Chin Ranch, Luohai Ranch, and Sifang Ranch). As China's dairy farming industry is still in a period of integration and government policy support, the prospect of the industry is still promising. However, compared with the same industry, the industry lacks downstream services and has not entered the upper reaches of the industry. The collection company may not have a better grasp of the entire industry, and the valuation is relatively high, and investors should make small comments on the stock market.

Negative factor

(1) if any disease or infectious disease breaks out on a large scale of the pasture, it may seriously affect the production of raw milk; (2) product contamination can affect the duties and responsibilities of the market and make the market take care of and supervise the products; (3) the biological property does not realize the nominal income or profit or fluctuate significantly in different periods. (4) during the purchase period, the five major customers (Mengniu, Yili, Guangming Dairy, Yili Dairy and Abe) account for almost all of the proceeds. If the sales to any of the top five customers are small or any one of the top five customers fails to pay the collection in time, it will adversely affect the operating conditions and sales of the collection. (5) the herdsmen of the market began to sell and produce raw milk in 2010, and the consumption history is limited to evaluate the prospect; (6) the feed cost accounts for about 80% of the total selling cost, which may be adversely affected by the fluctuation of raw material or the loss of raw material supply.