20131010-巴黎银行证券-BIOSTIME_INTERNATIONAL_Another_solid_quarter_11页_341kb

Biostime International Summary

Core Content

Biostime International (1112 HK) is a baby product company with a primary focus on infant formula. The company has demonstrated strong growth in its operational metrics, including an increase in active Mama100 members and retail points-of-sale (POS). Despite potential regulatory risks, the firm is viewed as a high-quality consumer product company with solid management and healthy cash flows.

Main Points

• 3Q13 Performance:

  • Active Mama100 members reached 1.85 million, up 37.8% year-over-year (y-y), exceeding the full-year forecast of 1.81 million.
  • POS increased by 25.5% to 17,358, showing strong momentum in retail network expansion.
  • The number of drug stores with Mama100 Members' Zones grew 35.5%, the fastest among all three channels.

• Revenue Forecast:

  • Management's guidance of 30% revenue growth in 2013 is considered conservative.
  • The research firm forecasts a 41% y-y revenue growth for FY13 at RMB4.77 billion.
  • The company's revenue is driven by active Mama100 members, average spend per customer, and revenue contribution from loyal customers.

• Valuation and Target Price:

  • Target price remains unchanged at HKD70.50, based on a 25x FY14E P/E.
  • Recurring EPS is expected to grow by 47.2% in 2013 and 22.2% in 2014.
  • The company's valuation metrics, such as P/E and EV/EBITDA, show a declining trend, suggesting potential undervaluation.

• Investment Thesis:

  • Biostime has strong execution capabilities and has gained 6% market share in infant formula in five years.
  • The Mama100 platform has enabled the company to expand into baby food and care products.
  • The company has a healthy balance sheet, with recurring net profit and positive cash flows.

• Catalysts:

  • Biostime is expected to beat earnings expectations in 2013 due to successful new product launches and consumer shift from New Zealand-sourced products following a recall incident.
  • The company's strong brand image and marketing strategy are key drivers of growth.

• Risks:

  • The main risk is government policy changes in the dairy industry, which may increase operating costs and regulatory burdens.
  • The Chinese government is likely to announce new policies in October, which could negatively impact Biostime's business model.
  • Increased regulations could hurt Biostime's competitiveness against local state-owned enterprises (SOEs).

Key Information

Financial Highlights

Key Assumptions

Earnings Sensitivity

Key Executives

Key Risks and Policy Impact

Conclusion

Despite the risk of government policy changes in October, Biostime International is viewed as a high-quality company with strong growth potential. The company's expansion in the retail network and loyal customer base support its revenue growth. The research firm maintains a BUY rating with a 12-month target price of HKD70.50, based on a 25x FY14E P/E. Investors are advised to closely monitor the upcoming policy announcements and consider buying if the share price dips due to negative sentiment.