Event: the price of raw meat / meat meat fell by ~ 20% in May compared with the same period last year, although this will have a negative effect on the sales of rain meat, but it has a positive effect on gross profit margin. The profit of Nanjing Yuli, a subsidiary of Rain Foods, is up to 3 million for 1Q13, compared with 498 million for the whole of 2012, which supports what we consider to be the point of balance of income and expenditure of Rain Food this year.
Weak raw meat / meat consumption is beneficial to gross profit margin: due to seasonal factors and abundant supply of raw meat in the upper reaches, raw / meat consumption has decreased by ~ 20% compared with the same period last year. However, we estimate that meat consumption will benefit from the substitution effect of meat on bacon caused by bird flu. As a major raw material, weak health conditions will, to a certain extent, be beneficial to the gross profit margin of rains.
The increase in gross profit margin will be the main driving force in the response to economic gains. The decline in gross profit margin is the main reason why Yuyang recorded a poor record in 2012. Yuyu strives to increase the gross profit margin of slaughtering (slaughtering duty accounts for 90% of income) in 2013. specific measures are as follows: 1) to reduce production capacity consumption (capital expenditure is expected to drop from HK $5 billion in 2011 to HK $1 billion in 2013); 2) strengthen brand building 3) implement plumbing reforms by upgrading new pipelines, such as linking restaurant collections (such as True Kung Fu), food companies (such as tasty food), specialty stores and supermarkets; 4) improving the production process; and 5) improving production efficiency. We expect the gross profit margin of 2013 to return to 6.6%, and the rain will twist. In fact, its subsidiary, Nanjing Yuli Foods, 1Q13 has been twisted from-498 million to 3 million by the 1Q12 people. In the long run, we estimate that the slaughtering capacity of rain fish will grow at a combined growth rate of 30% + to 3000 million tons in 2015, thereby increasing energy utilization and slaughtering gross profit margin.
The integration of the agricultural industry is the main investment theme of the rainy season. The lack of supervision and highly dispersed agricultural industries and traditional food farms are the main causes of recent virus evolution and transmission and other food safety problems. The Chinese government is promoting laws and regulations on the meat trade and issuing limited slaughtering licenses to limit the number of slaughterhouses and improve supervision. In 2012, the total number of slaughtering stocks in the country decreased by 26.2%. Industry integration is beneficial to the industry, such as Rainbow Foods, which has a slaughtering capacity of 53 million tons. In the process of applying for and obtaining a slaughtering license in the past, small-scale slaughtering has a scale effect and quality.
Valuation and headline: we maintain a positive attitude towards rain as the beneficiary of industry consolidation. We also think that the new management has been very positive because its focus has changed from investment to gross profit margin. We believe that the rainy season has changed over the past 13 years, due to the continued increase in slaughtering volume and the recovery of gross profits, as well as the high volatility of profit recovery. We maintain the level of increase, target and profit forecast. The recent "dark sky" incident provides access to the opportunity.
Related assumptions: 1) 13-year annual standard of production; 2) slaughtering capacity increased by 12% in 13 years and gross profit margin recovered to 6.6% (8.6% in 11); 3) other income production capacity decreased by 63% compared with the same period last year.
Catalyst: slaughtering volume and gross profit recovery, government policies to support the integration of the agricultural industry. Profits: slow recovery of gross profit margin, corporate governance issues and food safety issues.
