The new business is growing steadily, and we look forward to improved demand and profit recovery
Revenue for 23 was $13.46 billion (+9.5% YoY), net profit to mother of $180 million (-68.9% YoY); of which 23H2 revenue/net profit to mother was $68.2/-0.3 billion (YoY +2.4%, 22H2 net profit of $50 million). Raw milk production capacity entered a rapid release period in 23 years. The company's annual raw milk production reached 2.59 million tons, +9.5% year over year; the average price was 4.03 yuan/kg, -5.6% year over year. Milk prices declined due to weak demand for downstream dairy products and mismatch between supply and demand. In recent years, the company has developed new business segments such as forage sales/digital intelligence platforms. With cost advantages and organic collaboration between old and new businesses, the company provides new impetus for the steady development of the company. Looking ahead to 24 years, the revenue side is looking forward to improved downstream demand and product structure optimization; the company is actively promoting cost reduction and efficiency, and profits are also expected to improve. The company's 24-26 EPS is expected to be 0.06/0.08/0.08. Referring to the comparable company's 24-year PE average value of 15xPE (Wind agrees), the company is given a 24-year 15xPE with a target price of HK$0.9 to “buy”.
The raw milk business was weighed down by the slump in milk prices. Looking at the impressive performance of the new forage/digital intelligence platform, the company's core business raw milk revenue was 10.26 billion yuan, +3.2% year over year. Among them, raw milk sales were +9.4% to 2.55 million tons, and milk prices were -5.6% to 4.03 yuan/kg. However, the decline in the company's milk price was lower than the decline in raw milk prices in the market (7.7%). The revenue from the new business in '23 was $3.20 billion, +35.9% year-on-year, of which mainly revenue from the feed business. The number of dairy cows kept continued to grow in 23 years. Among them, the total number of dairy cows kept was 451,000, +11.2% year over year, and 219,000 adult dairy cows were kept, +9.5% year over year. The average annual yield of dairy cows reached 12.6 tons/head in '23, +3.3% over the same period. The yield efficiency continues to improve, which is expected to continue to bring about cost improvements and efficiency improvements.
Gross margin for 23 years was 3.4 pct year on year, net profit margin to mother - 3.3 pct23 gross profit margin of 23.2% year on year, year over year - 3.4 pct (23H2 -0.6 pct year on year to 23.6%). Among them, the gross margin of the main raw milk business was -2.7 pct to 28.4% year on year, mainly due to low milk prices and rising feed costs; gross margin of the new business was -0.6 pct to 6.7% year over year. The fair value loss of the company's biological assets in '23 reached 1.28 billion (loss of 990 million in '22), mainly due to falling beef sales prices, falling raw milk sales prices, and rising feed costs; under the combined influence, the company's net interest rate to mother was -3.3 pct to 1.3% year-on-year in '23. With the clearance of small and medium-sized ranches in '24, the supply and demand pattern is expected to improve, and we expect milk prices to stabilize in the future.
Optimistic about cost leadership and the synergy between old and new businesses, maintaining the “buy” rating, considering that milk prices will take time to begin the upward cycle. We lowered our profit forecast. We lowered our profit forecast. We estimated the 24-25 EPS to be 0.06/0.08 yuan (previous 0.11/0.15 yuan), introduced a 26-year EPS of 0.08 yuan, and maintain the target price of HK$0.9, “buy”.
Risk warning: 1) the price of raw milk is lower than our expectations; 2) feed costs are rising rapidly; 3) capital expenditure is higher than our expectations; 4) Implementing a costly external financing plan.