20160517-兴证国际证券-雅士利国际-01230.HK-Start_era_of_“New_Domestic_products”,_looking_forward_earnings_recovery_29页_1mb

Yashili International (1230.HK) Summary

Core Content

Yashili International (1230.HK) is a leading player in the Chinese nutrition food industry, with a focus on milk powder, soymilk powder, and cereal products. The company has undergone significant restructuring and transformation over the past few years, entering a new era of "New Domestic Products" with a reformed product portfolio, sales distribution network, and production capacity. Analysts from Industrial Securities Research have initiated Yashili with an "Outperform" rating and a target price of HK$2.20, indicating a 22% upside from the current price of HK$1.80.

Main Points

Investment Highlights

• Outperform Rating and Target Price: The company is rated "Outperform" with a target price of HK$2.20, implying a P/E of 35x in 2016 and 30x in 2017.
• Earnings Recovery: Yashili is expected to recover earnings in 2016 due to new production capacity, improved product mix, and a shift in sales channels.
• Projected Growth: Revenue is forecasted to grow at a CAGR of 20% from 2015 to 2018, while net profit is expected to grow at a CAGR of 42%.
• New Zealand Production: The New Zealand factory commenced operations in November 2015, contributing to the company's new product supply and enhancing its market position.
• Maternal & Child Focus: The company plans to improve sales in the maternal & child segment, which is expected to contribute over 40% of total revenue in 2016.
• E-commerce Growth: E-commerce channels are projected to account for 15% of total revenue in 2016, showing a growing trend in online sales.

Key Financial Indicators (2015A and 2016E)

Revenue Drivers

• New Zealand Factory: Launched in 2015, it is expected to boost revenue and improve product quality.
• Maternal & Child Segment: Expected to grow significantly, contributing over 40% of revenue in 2016.
• E-commerce: Expected to grow to 15% of total revenue in 2016.
• Adult Milk Powder: Sales are expected to rise 20% YoY, becoming a new growth driver.

Industry Analysis

Market Trends

• Baby Formula Demand: Maintains an upward trend, with a CAGR of 10% for the next five years.
• Import Growth: China's milk powder import volume has increased rapidly, especially from overseas brands.
• Consumer Confidence: Shift towards overseas brands due to improved quality and safety.
• Sales Channel Shift: Traditional channels like supermarkets are declining, while mom & baby stores and e-commerce are rising.

Regulatory Impact

• Registration Policy: The new "Administrative Measures for the Registration of Recipes of Infant Formula" is expected to increase market consolidation and favor companies with strong product mix and overseas resources.
• Market Concentration: Currently low in China, but expected to improve significantly with the new policy, leading to a more competitive market environment.

Investment Thesis

Strategic Reforms

• Product Mix: Yashili has five brands, with clear positioning in different market segments.
• Production Capacity: New Zealand factory enhances the supply of high-quality raw milk and supports the production of originally packaged products.
• Sales Network: Shift from traditional channels to mom & baby stores and e-commerce, which are more efficient and consumer-friendly.
• Synergy with Partners: Strategic cooperation with Danone and Mengniu enhances its competitive position and provides access to global resources and market insights.

Long-Term Benefits

• Policy Support: The new registration policy will likely benefit Yashili by increasing market concentration and improving its market share.
• Future Expansion: Plans to expand into adult and elderly milk powder markets, leveraging its existing brand strength and distribution network.

Risks

• Sales Disappointment: Lower-than-expected sales in maternal & child channels could affect earnings.
• Raw Material Prices: Sudden changes in the price of raw milk could impact profitability.
• High Expenditure: Increased costs for expansion and operations may strain financial performance.
• Dumex China Performance: Negative earnings from Dumex China could affect overall results.

Valuation

• Target Price: HK$2.20, suggesting a 22% upside from current price.
• P/E Ratio: 35x in 2016 and 30x in 2017.
• DCF Valuation: Indicates a positive outlook for future earnings and growth.

Conclusion

Yashili International is positioned for recovery and growth in the Chinese milk powder market, supported by strategic reforms, new production capacity, and a shift in sales channels. The company's focus on high-end and mid-end products, combined with its partnerships and regulatory advantages, presents a promising investment opportunity. However, risks such as sales performance, raw material costs, and Dumex China's earnings must be closely monitored.