Yasheng Group is the largest producer of high-quality alfalfa in China and is expected to fully benefit from the increase in the price of alfalfa.
Due to the gap in scale and quality stability, domestic alfalfa hay commodities have been priced with reference to imports for a long time. This round of trade frictions between China and the United States has led China to list alfalfa products in the counter-catalogue. according to our estimates, a 25% tariff is expected to push up the import price by 500-600 yuan per ton, and it is expected to increase domestic grass prices by the same amount. Domestic grass prices are expected to rise by 30-40% after the introduction of tariffs. The sales volume of alfalfa in Yasheng Group is about 11-130000 tons in 2014-2017, and it is expected to fully benefit from the opportunity to increase the price of alfalfa brought about by this round of trade friction between China and the United States. we expect the company to achieve a net profit of 2.52 hundred and thirty-five million yuan in 2018-2020, corresponding to 0.170.24 yuan in EPS, which gives the company a valuation of 23-24 times in 2018, corresponding to the target price of 2.99-3.12 yuan in 2018. Upgrade to "overweight" rating.
High-quality alfalfa hay is necessary for high-yield dairy cows, and the shortage of domestic supply and demand will persist.
Alfalfa, known as the "king of pasture", is a necessary additive to maintain the yield and quality of high-yield dairy cows. The scale of dairy farming in China advanced rapidly after the melamine incident in 2008, which led to the rigid growth of demand for high-quality alfalfa. From the perspective of supply and demand pattern, in 2017, China's domestic high-quality hay supply was only 2.5 million tons, with imports of 1.3978 million tons, while the "National Alfalfa Industry Development Plan (2016-2020)" issued by the Ministry of Agriculture and villages predicted that the domestic potential demand would reach 6.9 million tons by 2020. Domestic supply is 3.6 million tons, import 1.5 million tons, there will still be a shortfall of 1.8 million tons.
The United States is the global forage overlord. China imports more than 90% of its alfalfa from the United States, which is difficult to replace in the short term.
The American alfalfa industry is the bedrock industry supporting the development of its animal husbandry, and it is also the fourth largest crop in the United States.
Due to the large yield, stable quality, strict classification and low freight of alfalfa produced in the United States, China has long relied on imports from the United States to supplement the domestic shortage. In 2017, China imported alfalfa hay from the United States accounted for 93.5%, we believe that in the short term, other source countries such as Spain, Canada, Argentina and other countries have no possibility of replacing the United States in terms of quantity and cost performance.
Trade countermeasures include alfalfa, which is expected to push up import prices and domestic grass prices.
Due to the gap in scale and quality stability, domestic alfalfa hay commodities have been priced with reference to imports for a long time. This round of trade frictions between China and the United States has led China to list alfalfa products in the counter-catalogue. according to our estimates, a 25% tariff is expected to push up the import price by 500-600 yuan per ton, and it is expected to increase domestic grass prices by the same amount. Domestic grass prices are expected to rise by 30-40% after the introduction of tariffs.
Alfalfa is listed in the counter-catalogue, which benefits the leader of the grass industry and is upgraded to the rating of "increasing holdings".
Yasheng Group is expected to fully benefit from the possible increase in alfalfa prices brought about by this round of trade frictions between China and the United States. We estimate that the company's alfalfa sales in 2018-2020 will be 1.400 million tons, with a net profit of 2.52pm and 468 million yuan, corresponding to EPS 0.13x0.17max 0.24 yuan. With reference to the average PE valuation of land reclamation listed companies in 2018, and considering that the company has the largest alfalfa output in China, rich in its own reserve land resources, and should enjoy a certain valuation premium, we give the company an PE valuation of 23-24 times in 2018, corresponding to the target price of 2.99-3.12 yuan in 2018, upgraded to "overweight" rating.
Risk tips: natural disasters led to a reduction in the company's agricultural production; Sino-US trade friction eased, and China increased its imports of agricultural products from the United States.