Core ideas:

2021Q1 revenue growth is off to a good start. According to the company announcement, 2021Q1 achieved an operating income of 2.183 billion yuan, an increase of 12.94% over the same period last year, and the revenue growth was mainly contributed by the revenue growth of its own brand formula milk powder. After adjustment, the profit attributable to the equity holders of the 2021Q1 is 331 million yuan, an increase of 10.98% over the same period last year. 2021Q1's annual gross profit margin fell 2.80 percent to 51.10 percent, mainly due to losses caused by the decline in the prices of related dairy products affected by the COVID-19 epidemic and an increase in inventory provisions.

Hipnokai continues to maintain rapid growth. The business income of 2021Q1 Aoyou's own brand milk powder was 1.053 billion yuan, an increase of 36.47% over the same period last year, which was mainly driven by the revenue growth of Hipnokai (718 million yuan, an increase of 58.70% over the same period last year). The main reasons are: (1) the company increases brand investment to enhance consumers' awareness of the brand; (2) the company carries out sales activities in the first-tier market to enhance consumer experience. (3) the company adopts 1-3 brand strategy and carries out product layout through different channels. The business income of 2021Q1's own brand goat milk powder was 872 million yuan, down 7.07% from the same period last year; the growth rate of business revenue of sheep milk powder slowed down, mainly because of the high base of 2020Q1 goat milk powder (increased demand for hoarding products affected by COVID-19 's epidemic). We believe that the company's revenue will continue to grow: (1) the company's active marketing strategy to enhance the brand; (2) the company continues to promote product upgrading, plans to launch organic goat milk powder, liquid sheep milk and A2 milk powder and other products; (3) the company has completed the channel carding and strengthened channel control in 2020, and it is expected that the operating efficiency will be improved.

It is estimated that the operating income from 2021 to 2023 will be 102.9510,967 million yuan. It is estimated that the company's operating income from 2021 to 2023 will be 102.9510967 billion yuan, an increase of 14.52% 12.57% and 6.53% over the same period last year, and the net profit of its home will be 1.434 billion yuan, an increase of 14.11%, 13.54% and 10.22% over the same period last year. We maintain our fair value of HK $16.76 per share, corresponding to 21 times PE for 21 years, and maintain a "buy" rating.

Risk tips. Risk of fluctuation in raw material prices; sharp decline in sales of core product lines; food safety issues.

Note: unless otherwise stated, RMB is used as the currency in this article.