Australian excellent released its mid-term results for 2021, with revenue of 4.27 billion / + 10.7% and net profit of 570 million / + 36.2% in the first half of the year. Among them, sheep's milk powder revenue was 1.69 billion / + 2%, and the growth rate returned to double digits in the second quarter. Milk powder revenue 2.05 billion / + 1.69 billion, the growth rate slowed down significantly in the second quarter, mainly because the company adjusted the delivery pace to ensure the healthy development of the channel.
Sheep milk powder inventory returned to normal, achieving double-digit growth in the second quarter. After experiencing the event of fleeing goods in 2020, the company actively carried out channel control, strengthened price supervision, controlled the delivery rhythm, and conducted extensive dealer visits to enhance dealer confidence. Channel inventory gradually decreased, from the financial level can also be seen that sheep milk powder business is improving quarter by quarter. The revenue of 21Q2 goat milk powder was 817 million, an increase of 13.8% over the same period last year, and the growth rate returned to double digits. The current channel inventory is more than 2 months, which is a reasonable level.
The growth rate of milk powder slowed in the second quarter. 21Q2 milk powder revenue 760 million, an increase of 1.6% over the same period last year, mainly due to the slowdown in the growth rate of Hipnokai's Da Anyuan business, including: 1) the impact of the high base in the same period last year; 2) the change in product promotion policy in the first quarter from five free one to six free one, resulting in dealers hoarding goods in the first quarter; 3) there was a price war in the industry, leading to a decline in product prices, and offline sales were hit by 1897 activities. Based on these problems, the company adjusts the delivery rhythm in time and organizes a team to monitor the market price from time to time. At present, the terminal sales price has stabilized and rebounded, and the terminal inventory has been controlled at 1.5 months. The company said it would continue to tighten controls in the third quarter and hope to resume growth in the fourth quarter.
The nutrition business continues to advance. Nutrition income in the first half of the year was 68 million, up 3.5% from the same period last year. The epidemic led to a sharp decline in purchasing agents in Australia, while China's nutrition business grew 33 per cent year-on-year and performed well. In the first half of this year, NutritionCare launched a number of probiotic products and continued to open up the market.
In the first half of the year, the gross profit margin decreased compared with the same period last year, while the gross profit margin In the first half of the year, annual gross margin 50.0%/-2.4ppt, goat milk powder 62.1%/+1.7ppt, milk powder 59.6%/+3.6ppt, nutrition 63.1%/+3.7ppt, private brands and other 0.3%/-14.8ppt, inventory impairment 180 million / + 215%. The increase in own-brand gross profit margin is mainly due to some promotions carried out last year to reduce channel inventory, and this year has been able to rebuild a robust price system, resulting in an increase in gross profit margin. In addition, the improvement of the efficiency of the upstream factories has also helped to improve the gross profit margin. The impairment of inventory in the first half of the year led to a year-on-year decline in overall gross margin. Net interest rate in the first half of the year 13.4%/+2.5ppt, there was a loss of 160 million in the fair value of financial assets in the first half of last year. After deducting this expense, the adjusted net profit decreased slightly compared with the same period last year.
On the whole, we think that although the market competition is intensifying, the company still maintains a good competitiveness in such a market environment, sheep milk powder gradually recovers, although milk powder has twists and turns, it is also adjusted in time. The high-end milk powder is still going on, and we are optimistic about the company's performance on the high-end track. We basically maintain our previous profit forecast, with an annual net profit of 1.23 billion yuan for 21-22-23, corresponding to HK $1.13 billion for EPS.
Taking into account the decline in the birth population to suppress the stock price, we lowered the target price and maintained the "buy" rating, with a target price of HK $15.0, up 91% from the current share price.
Risk tips: the number of births has declined more than expected; competition in the industry has intensified; and serious safety accidents have occurred in the industry or companies.