Report summary:
Deeply involved in the dairy industry and diversified development of digital intelligence information. The company focuses on the dairy business, covering the entire dairy industry chain business such as dairy product production and processing, dairy farming and forage cultivation. The main products are liquid dairy products and milk beverages such as pasteurized milk, formulated milk, sterilized milk, fermented milk, etc., with buffalo milk and black and white flower milk as the main raw materials. As the company's core business, dairy products have maintained steady growth. Revenue increased steadily from 404 million yuan to 1.52 billion yuan in 2010-2019, and CAGR reached 15.86% in 2010. The information service sector includes SMS, customer service, e-commerce, and intelligent services. The revenue of the information business increased from 18 million yuan to 512 million yuan in 2015-2019. CAGR reached 131%, accounting for 22.73% of revenue in 2019, which gradually grew into a new business growth point.
With product+channel two-wheel drive, the dairy business is expected to grow at an accelerated pace in the future. On the product side, the company's products are mainly pasteurized milk (accounting for more than 50% of sales), including specialty buffalo milk, fruit milk, and fermented milk, etc., to meet the demand for quality and diversification of consumption, and is expected to take advantage of the industry to accelerate growth. At the same time, the company's specialty product, buffalo milk accounts for more than 40% of sales. The nutritional value and taste of buffalo milk far exceeds that of ordinary black and white flower milk. The company is based in Guangxi, the main producer of domestic buffalo milk, and lays out 27 breeding bases and 6 dairy processing plants through the “self-build+base+farmer” model. It has 80% controllable milk sources in Guangxi, and produces 50 tons of dairy products per year. The company has accelerated product iteration. The products cover 12 major series, including buffalo milk, low temperature milk, room temperature milk, kefir, etc., and the product matrix has been improved. On the channel side, the company adopted a combined direct sales and distribution model, with supermarkets as the main focus. The channel has sunk deeply to explore the potential of low-tier cities and township markets, while seeking expansion in surrounding provinces and regions. It has now achieved full coverage in the Yungui, Qianxiang regions, and has accelerated penetration and deployment in the Greater Bay Area, Yangtze River Delta, and Greater Chengdu and Chongqing regions. In recent years, the company has stabilized the original channels for school milk and milk delivery to households, and has tried new retail models such as WeChat shopping malls and live streaming, with remarkable results. We forecast that the dairy business revenue will continue to grow by more than 15% over the next three years.
Empower the information sector, and future growth can be expected. In 2015, the company entered the information service sector and developed SMS, customer service, e-commerce, and intelligent services through the three information business subsidiaries of Zhuwang Technology, Perfect Online, and Huangshi Digital Intelligence. In 2015-2019, corporate information services achieved rapid growth. Revenue increased from 18 million yuan to 512 million, CAGR reached 130.94%, and revenue share increased from 1.07% to 22.73%, which is expected to become a new growth point for the company's performance.
Profit forecast: The EPS for 2020-2022 is expected to be 0.07, 0.09, and 0.11 yuan, and the corresponding PE is 52X, 41X, and 31X respectively. The first coverage gave an “increase in holdings” rating.
Risk warning: rise in raw milk, risk of impairment of goodwill, profit predictions and valuation judgments fall short of expectations