The company's recent situation

The company recently organized a shareholders' meeting, and management had in-depth exchanges with investors.

reviews

The dairy industry has been disrupted by weak demand in the short term, and there is still room to increase the penetration rate of liquid milk in the long run. The sales performance of dairy products in 1Q was relatively weak, mainly due to channel removal of inventory, partial replacement of gift demand, and weak demand for yogurt. On the demand side, consumers in high-tier cities have a strong penetration rate of dairy products and mandatory attributes, while the mandatory attributes of dairy products in low-tier cities are relatively weak, causing the industry as a whole to be disrupted by weak consumer demand in the short term.

We believe that at present, there is still a big gap between China's per capita annual consumption of dairy products (40+kg) compared to Japan/South Korea (95, 80+kg), and there is still room for improvement in per capita liquid milk consumption in the medium to long term; in the subregion, there is a big difference in the penetration rate of dairy products between high and low levels, urban and rural areas, and we expect that there will still be room to increase the penetration rate in cities where the industry goes offline in the future.

Categories and channels work together, and the benefits within the company are obvious. In terms of categories, the company adheres to strategic strength and focuses on high-margin products such as fresh milk and specialty yogurt around the “fresh” strategy, hoping to continue to promote product structure upgrades; on the one hand, the company hopes to expand around core cities to urban agglomerations and surrounding areas to obtain additional business volume; on the other hand, the company plans to expand D2C channels. In addition, it is also actively embracing snack sales channels and exploring ways of cooperation. We expect new markets and channels to contribute new growth points. Benefiting from two-wheel drive in categories and channels, the company's internal benefits have been obvious in the past three years. Fresh milk revenue has grown steadily, and low-temperature yogurt has also maintained steady growth, and the segment performance is clearly better than the industry; in addition, the company's key sub-brand Vipshop 1Q's revenue has grown by 20%, continuing the growth momentum of the past few years. We expect B-side and C-end two-wheel drive development in the future to drive better business growth.

The company continues to pursue a five-year strategy and is expected to have a positive profit margin outlook for 24 years. The company adheres to a five-year development strategy, is committed to expanding and strengthening its core business, and hopes to double its profit margin on a 22-year basis. Although industry consumption was disrupted by weak demand this year, we expect the company's annual revenue to continue to grow faster than the industry and maintain a positive growth trend. In terms of profit margins, the company hopes to increase the share of fresh milk and specialty yogurt sales, and to improve operating efficiency through innovative means such as digitalization; in addition, the company maintained a steady state of operation during the downturn of the industry, and the company's own animal husbandry accounted for about 30%. In the current context of oversupply of raw milk in the industry, we expect the company to be relatively limited by the impact of animal husbandry assets, which is superior to the industry level. Looking at the whole year, benefiting from lower costs and structural optimization, we expect a year-on-year increase in gross margin and an improvement in gross sales margin. Furthermore, we expect a slight improvement in profit and loss from phasing out cattle, and the overall net interest rate increase in 24 is expected to be better than in 23 years.

Profit forecasting and valuation

The profit forecast for 2024/25 remains essentially unchanged. The company traded 17.6/14.8 times 2024/25 P/E; maintained a target price of 14 yuan, corresponding to 22.8/18.9 times 2024/25 P/E and 28% upward space, and maintained an industry performance rating.

risks

Demand is weak, competition is intensifying, and raw material prices are fluctuating.