Panda Dairy, as the "first share on the market of condensed milk", was founded in 1996. It has been engaged in R & D, production and sales of condensed milk for more than 20 years, and has more than 50 patents. It has been recognized as "Zhejiang time-honored Brand", "Zhejiang famous Trademark", "well-known Trademark" and so on. It has been awarded as excellent enterprise in Chinese dairy industry, invisible champion enterprise in Zhejiang Province, provincial backbone agricultural leading enterprise and other honors. The company's main business is the R & D, production and sales of concentrated dairy products and dairy trade. the main products include "Panda" brand series of prepared sweet condensed milk, full-fat sweet condensed milk, light condensed milk, full-fat light condensed milk, sweet milk sauce, Masuri cheese, cheese stick, condensed cream and so on. The company's market is mainly in East and South China and promotes regional expansion. It has initially built sales channels covering more than 30 provinces across the country, and has established cooperation with more than 170 dealers by mid-2021.

China's dairy industry is developing rapidly, but the per capita level is still low. Dairy products as a basic source of nutrition consumption has a solid foundation, strong rigidity, and there is still a lot of room for growth. China's dairy industry started relatively late, but thanks to rapid economic development and a large population base, it has become one of the largest dairy producers in the world after decades of development. the output of dairy products in 2021 was 30.3166 million tons, an increase of 9.44% over the same period last year, double that of 2006, and the CAGR was 5.0% in 15 years. China is also a big dairy consumer and importer. From 2016 to 2020, China's dairy market grew from 532.9 billion yuan to 638.5 billion yuan, with an average annual compound growth rate of 4.6%. In 21 years, China's dairy imports reached 4.1029 million tons, with imports of US $14.374 billion, up 17.96% and 14.09% respectively over the same period last year. In the past 20 years, the annual per capita consumption of dairy products in China has increased from less than 6 kg to 36 kg, but the dairy intake of Chinese residents is still on the low side, and the per capita milk consumption is still less than 1% of the world's per capita consumption, and less than 1% of Asia's per capita consumption. it is far lower than the daily intake of 300 grams guided by the Dietary guidelines for Chinese residents, and there is still much room for improvement.

At present, the consumption structure of dairy products is mainly liquid milk, the solid dairy industry is still in the early stage of development, the growth rate of cheese demand is higher than supply, and the gap between supply and demand is expanding. In the past two decades, with the continuous improvement of people's living standards and healthy eating consciousness, domestic dairy consumption has experienced the upgrading from flavor milk beverage milk to liquid fresh milk and then to yoghurt. At present, China is still in the stage of liquid milk consumption. In 2021, liquid milk production was 28.4298 million tons, an increase of 9.68 percent over the same period last year, accounting for more than 90 percent, and milk powder production was 979400 tons, an increase of 1.76 percent over the same period last year. Cheese benefit from the upgrading of dairy consumption, is in the early stage of rapid growth, is expected to become the main growth point of the dairy industry in the future, the domestic cheese industry has entered a period of rapid development. According to Zhiyan consultancy data, from 2014 to 2021, the annual output of cheese in China increased from 335000 tons to 373000 tons, and the apparent demand increased from 401000 tons to 549000 tons, with a compound growth rate of 1.5% and 5.7% respectively, and the gap between supply and demand widened to 176000 tons.

Cheese business layout for many years, ride the development of the industry, gradually become a new growth point of the company.

At present, the cheese industry has entered a stage of rapid expansion, and it will still maintain a high bearing in the future. at present, foreign capital occupies a leading position in the cheese market. with domestic capital paying more and more attention to the cheese market, it is expected to catch up quickly with more investment in the future. The company has a layout in the cheese field for a long time, and the cheese plate is gradually becoming a new growth point of the company's concentrated dairy products business. at present, the company has launched a series of products such as cheese sticks and Masuri cheese. in the future, we will continue to increase investment in research and development and application of new products and new packaging. Since 2018, the company has invested in new production capacity of new products such as cheese and cream, and set up a sales team to actively layout the market of new products such as cheese and cream. At the spring sugar and wine conference in 21, the company launched a 520 formula of children's cheese stick specially developed for Chinese children's nutrition, focusing on the concept of "5 times milk calcium, 2 times milk protein, 0 sucrose" and choosing a healthier xylitol sugar-free formula. to help reduce the risk of dental caries and cultivate healthy eating habits in Chinese children.

Condensed milk market is small but growing steadily, benefiting from the upgrading of consumption and the development of catering standardization. Condensed milk is one of the storage methods of fresh milk explored by human beings for thousands of years. because of its unique flavor, condensed milk is mainly used as an intermediate ingredient of dairy food, mainly used in catering, baking, beverage, food industry and other fields. finally reach consumers in the form of catering, pastry, beverage and so on. The domestic condensed milk market is relatively small, but with the enrichment of usage scenarios, it is in a period of steady growth. In 2015-2019, the market size increased from 2.73 billion yuan to 3.68 billion yuan, with a CAGR of 7.8%. It is expected that it will be close to 4.6 billion yuan in 21 years. Driven by the upgrading of consumption, the food supply chain is gradually developing under the trend of food standardization, condensed milk as a standardized flavor carrier is expected to benefit. In recent years, the prosperous development of milk tea and baking has brought increment to the industry. under the concept of low-sugar and healthy diet, reduced sucrose sweet condensed milk instead of plant fat powder has been used in the field of milk tea.

Brand + product + channel advantage, break away from low-quality competition; the combination of production, learning and research, service is more flexible. As a leader in deeply ploughing condensed milk for more than 20 years, the company has a leading brand. The prospectus shows that Panda is the second largest condensed milk brand in the domestic market after Nestl é, and the two companies have strong advantages in technology, brands and so on. it has strong competitiveness in the middle and high-end condensed milk product market, while other domestic condensed milk brands are mainly concentrated in the middle and low end market, and the market competition is more fierce. "Panda" brand full-fat sweet condensed milk won the gold medal of the World Food quality Evaluation Conference in 2019, has a high influence and popularity in the domestic dairy industry, and has been recognized by many well-known domestic food production enterprises. the company has established and maintained a good business relationship with Xiangpiaopiao, China Mengniu Dairy, Danone Dairy, Golden Monkey and other companies. The company insists on the R & D investment of new products and new technologies, improves the research level and the transformation ability of technological achievements under the mode of combination of production, learning and research, obtains more than 50 patents, and successfully solves the technical problems that thin cream is not easy to deal with at room temperature. On the basis of research and development, actively layout trend products, continue to launch new products, compared with competitive products, the company adopts customized services, with the help of production technology advantages, to provide customers with products closer to their actual application scenarios, more flexible.

Investment suggestion: as a leader in condensed milk industry, the company has strong competitiveness in middle and high-end products and has high influence and popularity in the domestic dairy industry. There is still a lot of room for the development of China's dairy industry, and the track of the company's core products condensed milk and cheese are in the early stage of development, which is expected to continue to benefit from the long-term improvement of industry penetration and per capita intake. We predict that the company's EPS will be 0.68,0.90,1.11 yuan per share from 2021 to 2023, and the current share price will be 31.5x, 23.7x and 19.3x corresponding to PE multiples, covering for the first time and giving a "hold" rating.

Risk tips: repeated epidemic situation in some areas; price trend is not as expected; new product promotion is not as expected; food safety issues; company shareholders and concerted actors stock reduction risk.