Main points of investment:
Cover for the first time and give an overweight rating. The company's multi-dimensional transformation, performance waiting for release, forecast 2020-2022 EPS of 0.50,0.64,0.81 yuan, with reference to comparable company valuation, give the target price 26.25 yuan, corresponding to 2021 PE 41x.
Multi-dimensional transformation helps to reverse performance. Affected by the structural adjustment of dealers and the epidemic situation, the company's 2019x20E (expected) annual income has declined compared with the same period last year. Up to now, the above negative factors have been basically relieved. We expect the company to increase investment including category expansion, channel expansion, regional expansion, brand upgrading, product innovation, etc., optimize the supply chain system, give full play to the flexible mechanism advantages of private enterprises, and strengthen incentives. We expect revenue and profit growth to reverse in 2021.
Optimize the supply chain and promote the gross profit margin. In recent years, the company has expanded its own production capacity, the proportion of contract manufacturing has dropped from 63% in 2017 to 34% in 2019, and the cost of the company's products per ton has decreased by 11% from 2017 to 2019, which in turn has pushed up the company's gross profit margin by 4.4% to 52.7% in 2019. We expect that with the improvement of the supply chain, the strengthening of cost control and the upgrading of product structure, there is still room for improvement in gross profit margin.
The market of lactic acid bacteria is in the ascendant, and there is a lot of room for concentration. According to Euromonitor data, the market size of room temperature lactobacillus drinks where the company's "taste power" products are located is 15.9 billion in 2019 and is expected to reach 21.2 billion yuan by 2024. Nielsen data show that as of July 2020, the company has the largest market share (12.3%), and the overall share of CR3 is 35.4%. Compared with the evolution of the normal temperature yoghurt market, we expect that there is still much room for improvement in the market concentration of room temperature lactic acid bacteria for a long time, and the company will make use of brand promotion and channel advantages to strengthen its leading position, and the company aims to reach 50% of the market in the next 3-5 years.
Risk tips: food safety, changes in consumption habits.
