Key points of investment:
The low temperature space is wide, and pasteurized milk has good momentum. Low-temperature fresh milk has a broad space. According to Euromonitor data, the CAGR for low-temperature fresh milk in 2017-2022 is 13%, which is the highest growth rate among the dairy industry segments. Since it can extend the shelf life and further cultivate consumers' milk drinking habits, the expansion of the low-temperature fresh milk industry will accelerate the expansion of the low-temperature fresh milk industry, and the long-term market space will exceed 70 billion yuan. Traditional pasteurized milk competition is dominated by regional dairy companies. After the advent of Chaopa Milk, the sales radius of low-temperature white milk was broadened, competition between oligarchs intensified, and regional dairy companies advanced and retreated and defended. The domestic milk delivery channel has advantages such as exclusivity due to no overdue returns, no intermediate channels, etc., and has the highest level of profit. It is the ultimate battleground for low-temperature milk competition.
High supply chain efficiency and channel barriers protect low-temperature milk. In the low-temperature milk business, the company has built high supply chain efficiency through an integrated upstream and downstream industrial layout. The upstream self-built ranch guarantees the supply of raw milk. **** Ranch has the highest production capacity scale and production capacity efficiency in the industry. The downstream holding logistics city is equipped with the largest leading fresh logistics system to guarantee transportation capacity.
In terms of channels, reducing sales links and selling products with higher profit margins is essential for the low temperature business, and **** is less difficult to upgrade the company's products by customizing and setting up stable channel barriers, so it is expected to further enhance performance through product upgrades. In addition, the Jiangsu and Zhejiang markets have been cultivated for many years, steady volume, nationwide ranch construction, and the advent of superbus milk have helped the company expand nationally.
The integration and empowerment of mergers and acquisitions is expected to support performance. Due to the limited sales radius of the fresh milk circuit, market expansion itself is slow. Market expansion efficiency can be improved through epitaxial acquisitions. The company's mergers and acquisitions have accelerated in recent years, and the acquisition company is expected to effectively support performance through continuous integration and empowerment. Among them, Xinwright is expected to resume growth under the leadership of new management, and Konishi Beef is expected to complement ****'s existing channel market with unique milk source location advantages, thus further developing the market, adding promises of high performance, and future growth can be expected.
Profit forecast and investment advice: We expect the company to achieve net profit of 960/6.71/795 million yuan in 2023-2025, 166.1%/-30.0%/18.5% year-on-year, respectively. Considering the increasing popularity of low-temperature milk, the company's competitive advantage is clear, and future growth can be expected. We gave the company 22X PE in 2024, with a corresponding target price of 10.72 yuan. First coverage, giving the company a “holding” rating.
Risk warning: industry promotion competition intensifies; raw milk prices fluctuate greatly; terminal demand falls short of expectations; extraterritorial expansion falls short of expected risks; food safety incidents