Description of the event

The company's 2024H1 gross revenue was 59.915 billion yuan (-9.49% YoY); net profit to mother was 7.531 billion yuan (+19.44% YoY), after deducting non-net profit of 5.324 billion yuan (-12.81% YoY). The company's total revenue for 2024Q2 was 27.338 billion yuan (-16.54% YoY); net profit to mother was 1.608 billion yuan (YoY -40.21%), after deducting non-net profit of 1.597 billion yuan (-39.84% YoY).

Incident comments

The liquid milk boom was under pressure, competition intensified, and milk powder accelerated month-on-month. In terms of revenue, by product, look at 2024H1: liquid milk 36.887 billion yuan (YoY -13.05%), 2024Q2:16.626 billion yuan (YoY -19.61%); milk powder and dairy products 14.509 billion yuan (YoY +7.31%), 2024Q2:7.081 billion yuan (YoY +16.49%); cold drink products 7.322 billion yuan (YoY -20.04%), 2024Q2:2.989 billion yuan (YoY -44.27%); other products 0.406 billion yuan (YoY +26.59%), 2024Q2:0.208 billion yuan (YoY +13.89%). By region, 2024H1: North China 16.798 billion yuan (YoY -6.05%), 2024Q2:7.54 billion yuan (YoY -14.02%); South China 14.706 billion yuan (YoY -11.93%), 2024Q2:6.98 billion yuan (-20.62% YoY); Central China 10.998 billion yuan (YoY -11.11%), 2024Q2:4.637 billion yuan (YoY -15.9 billion yuan) %); East China 9.084 billion yuan (YoY -13.77%), 2024Q2:4.153 billion yuan (-21.58% YoY); other 7.539 billion yuan (-5.05% YoY); 2024Q2:3.594 billion yuan (-8.65% YoY). The liquid milk boom is under pressure, mainly due to increased price competition in the raw milk industry during the downturn, and the company's share remained number one; milk powder entered a low base and accelerated to double-digit growth. The share of infant formula increased by 1.7 pct to 16.9%, and the share of adult powder increased by 0.5 pct to 24.3% (number one in the industry); and the share of cheese products on the C-side increased by 1.2 pct to 18.8%.

Marketing expenses increase, and falling costs are accompanied by increased expenses, and upstream guarantees & powder spraying impairment increase the profit burden. The company's 2024h1 net profit margin increased 3.04pct to 12.57% year on year, gross margin +1.65pct year on year, and the period expense ratio was +1.49pct to 23.34% year on year. Detailed changes: sales (+1.86pct year over year), management (-0.1pct year over year), R&D (+0.05pct year over year), finance (-0.32pct year over year), taxes and surcharges (+0.05pct year over year). The company's 2024Q2 net profit margin fell 2.33 pct to 5.88% year on year, gross margin +1.11 pct year on year to 33.84% year on year, and the period expense ratio was +2.08 pct year on year to 24.28% year on year. Detailed changes: sales (+2.51 pct year over year), R&D (+0.12 pct year over year), finance (+0.01pct year over year), taxes and surcharges (+0.03pct year over year). Continued decline in raw milk prices led to increased terminal price competition for dairy products. Along with improvements in gross margins and rising cost rates, the net interest rate of 2024Q2 declined due to increased marketing expenses during the Olympics. Furthermore, 2024H1 credit impairment and inventory impairment dragged down profits.

The recovery in demand for dairy products has had its ups and downs, and the return value for shareholders has been highlighted. Against the backdrop of the continued decline in milk prices, reflecting the twists and turns of the recovery in demand for dairy products, the company set a relatively steady growth target in 2024 (total operating income of 130 billion yuan, total profit of 14.7 billion yuan). As capital expenditure enters a healthy steady channel (2024H1 capital expenditure of 1.922 billion yuan, reaching 3.155 billion yuan in the same period last year), the company's dividend rate is also expected to maintain an upward trend. The 2023 cash dividend is 7.639 billion yuan. Corresponds to the current dividend ratio of 5.39%. The company's 2024/2025 EPS is estimated to be 1.87/1.78 yuan respectively, and the corresponding PE is 12/12 times, respectively, maintaining a “buy” rating.

Risk warning

1. Risk of slow demand recovery; 2. Industry competition further exacerbates risks; 3. Risk of changes in consumer consumption habits, etc.