The raw milk business supports revenue growth. In 2023 H1, the company's revenue was 9.08 billion yuan, up 4.2% year on year, and the growth rate was -15.2 pcts year on year. Raw milk business revenue increased 18.0% year on year to 6.16 billion yuan, with a year-on-year growth rate of -1.9 pcts, accounting for 67.8% of the company's total revenue, +7.9 pcts; feed business revenue decreased 17.0% year on year to 2.64 billion yuan, with a year-on-year growth rate of 34.3 pcts, accounting for 29.1% of the company's total revenue, year-on-year -7.4 pcts; dairy farming consumables business revenue decreased 24.5% year on year to 190 million yuan, growth rate -47.7%, accounting for 2.0% of the company's total revenue, same year-on-year -0.8pcts; breeding business revenue The year-on-year increase was 56.8% to 0.9 billion yuan, and the year-on-year growth rate was -58.5 pcts, accounting for 1.0% of the company's total revenue, and +0.3 pcts over the previous year.
The sales volume of raw milk production increased, and the selling price declined. In 2023 H1, the company's raw milk production increased 24.9% year on year to 1.437 million tons, sales volume increased 24.4% year on year to 1.402 million tons, the number of cows kept increased 20.6% year on year to 539,000 heads, and the annual yield of adult cows increased 7.0% year on year to 12.2 tons.
During the reporting period, the company put into operation a total of 7 newly built ranches, and the number of farms operated increased from 75 (as of June 30, 2022) to 85 (as of June 30, 2023). In 2023 H1, the average unit price of raw milk dropped 5.2% year on year to 4.39 yuan/kg.
The profit side is under pressure. In 2023 H1, the company's gross margin was 23.1%, year-on-year -1.0 pcts, of which the gross margin of raw milk was 28.3%, year-on-year -4.0 pcts. The main influencing factors were the general decline in domestic raw milk sales prices and the high level of feed costs; the gross margin of the systematic ruminant breeding solution was 12.0%, +0.1 pcts. In H1 in 2023, the company's net profit before the fair value of biological assets was 1.02 billion yuan, down 3.1% from the previous year. The loss due to the fair value of biological assets minus changes in sales costs was 2.26 billion yuan. After adjusting the fair value of biological assets, the company's net profit was -1.24 billion yuan, and net profit for the same period in 2022 was 200 million yuan. In 2023, H1, the company's adjusted net profit was -860 million yuan, compared to 440 million yuan for the same period in 2022.
Investment advice: We expect the company's revenue for 2023/2024/2025 to be 222.9/260.5/29.92 billion yuan, respectively +23.5%/+16.9%/+14.9%; return net profit is 13.2/14.3/1.87 billion yuan, +218.1%/+30.8%, respectively. Maintaining the “increase in holdings” rating, the target price is HK$1.57.
Risk warning: Product safety issues, raw milk quality is not up to standards, raw material costs are rising more than expected, raw milk prices are falling short of expectations, herd diseases.