20160517-兴证国际证券-雅士利国际-01230.HK-Start_era_of__New_Domestic_products_,_looking_forward_earnings_recovery_28页_2mb

Yashili International (1230.HK) Summary

Core Content

Yashili International (1230.HK) is a nutrition food company focusing on the research, development, manufacturing, and sales of milk powder, soymilk powder, rice flour, and cereal products. It has undergone significant restructuring over the past few years, including a shift in product portfolio, sales distribution network, and production capacity, marking the beginning of the "New Domestic Products" era. The company is now part of Mengniu's milk powder business platform and has formed strategic partnerships with Danone Asia and Arla Foods, enhancing its market position and product diversity.

Main Points

Investment Highlights

• Outperform Rating Initiated: Yashili is initiated with an Outperform rating and a target price of HK$2.20.
• Earnings Recovery Expected: The company is expected to recover earnings in 2016, supported by new product launches and a shift in sales channels.
• Projected Revenue Growth: Revenue is forecasted to grow at a CAGR of 20% from 2015 to 2018.
• Net Profit Growth: Net profit is projected to increase by 42% over the same period, with a 102% YoY growth in 2016.
• Upside Potential: The target price of HK$2.20 implies a 22% upside from the current price of HK$1.80.

Key Financial Indicators

• 2015A Revenue: RMB 2,762 Mn
• 2016E Revenue: RMB 3,447 Mn (+24.8% YoY)
• 2016E Net Profit: RMB 240 Mn (+102% YoY)
• 2016E Gross Margin: 51.3%
• 2016E Net Profit Margin: 6.95%
• 2016E ROE: 3.66%
• 2016E EPS: RMB 0.05

Strategic Shifts

• New Production Capacity: The New Zealand factory, which commenced production in late 2015, provides high-quality raw milk and supports new product launches.
• Product Mix Improvement: Yashili has diversified its product mix, including high-end, mid-end, and low-end offerings, targeting various consumer segments.
• Sales Distribution Network: The company has shifted its focus from traditional supermarkets to mom & baby stores and e-commerce channels, with the latter expected to contribute 15% of total revenue in 2016.
• Mengniu Integration: As the sole platform of Mengniu's milk powder business, Yashili is expected to benefit from industry consolidation and synergy effects.

Key Information

Industry Trends

• Baby Formula Demand Growth: China's baby formula market has maintained a rapid growth trend, with a CAGR of 10% expected for the next five years.
• Import Growth: Milk powder imports have increased significantly, with China's import volume reaching 900,000 tons in 2014.
• Domestic Brands Recovery: Despite the "melamine scandal" in 2008, domestic brands have recovered, with market share reaching 45% by 2015.
• Regulatory Impact: The implementation of the "Administrative Measures for the Registration of Recipes of Infant Formula" is expected to drive industry consolidation and improve market concentration.

Risk Factors

• Sales Performance: Lower-than-expected sales in maternal and child channels could affect earnings.
• Raw Material Prices: Fluctuations in raw milk prices may impact profitability.
• High Expenditure: The company faces potential challenges due to high operational costs.
• Dumex China Earnings: There is a risk that Dumex China may not meet expectations, which could affect overall performance.

Investment Thesis

• Earnings Recovery: With the launch of new products and the restructuring of sales channels, Yashili is expected to recover earnings in 2016.
• New Production Capacity: The New Zealand factory is expected to improve raw milk quality and reduce costs.
• Product Mix: The company has a clear product positioning to enhance competitiveness.
• Sales Distribution: A shift to mom & baby stores and e-commerce channels is expected to boost sales.
• Long-Term Benefits: The new policy on infant formula registration is expected to provide long-term benefits through industry consolidation and increased market shares.

Valuation

• Target Price: HK$2.20
• P/E Ratio: 35x for 2016, 30x for 2017
• DCF Valuation: Indicates a reasonable valuation based on future earnings growth and cost improvements.
• P/E Band: Suggests the stock is undervalued compared to peers.

Conclusion

Yashili International is positioned for growth and recovery, driven by new product launches, strategic partnerships, and a shift in sales channels. The company is expected to benefit from the consolidation of the baby formula industry and the increasing demand for high-quality milk powder products in China. Despite potential risks, the outlook remains positive with a strong target price and projected earnings growth.