The cost of raw materials continues to rise, but the growth rate slows down
Some companies raise prices due to the rising cost of raw materials
Companies with stable profit margins maintain a buy rating
The cost of some raw materials is still high
The rising cost of some raw materials is still our focus for food and beverage companies in fiscal year 22. According to the data of the National Bureau of statistics, since February 22, the average prices of palm oil, pet and corrugated paper have increased by 49.2%, 26.4% and 7.6% respectively year-on-year. We believe that the recent situation in Russia and Ukraine may further push up commodity prices, including oil, pet and Shenzhen Agricultural Products Group Co.Ltd(000061) prices. Nevertheless, we have noticed that the price of raw milk has peaked recently. At present, it is down 1% year-on-year, which should reduce the pressure of Mengniu on the rise of raw milk.
The cost of some raw materials continued to rise year-on-year and month on month
In February, palm oil prices continued to accelerate and are now at the highest level in 13 years. The price of other raw materials such as pet and corrugated paper has stabilized (the price has increased year-on-year, but the increase has fallen). Palm oil and pet plastics increased by 11.9% and 2.7% month on month, respectively, while the price of corrugated paper decreased by 0.1% month on month. The prices of these raw materials are at or close to historical highs (Palm oil-13-year high, pet-2-year high, corrugated paper-2-year high). According to our estimation, palm oil accounts for about 15% of the sales cost of Master Kang’s instant noodles business and about 7% of Master Kang’s overall sales cost. The cost of plastics accounts for 25% of the sales cost of Master Kang’s beverage business and about 13% of the overall sales cost of Master Kang. The packaging materials of instant noodles account for about 25% of the sales cost of instant noodles and 11.5% of the overall sales cost of Master Kang.
Other raw material cost inflation may also be reflected in the performance in the first half of 22 years
We also pay close attention to the price of aluminum. Aluminum is mainly used for the packaging of canned drinks and beer, and its price is now close to an all-time high again. In February 2022, aluminum prices accelerated again, with an average increase of 4.2% month on month, and the latest spot price was only 3.1% lower than the historical high. The glass index also accelerated again, rising 11.6% month on month, 34.0% lower than the peak in the second half of 21 years. The price of barley (another main raw material of beer) is also at an all-time high, with the average price rising by 10.7% year-on-year since February 22.
Some companies raised prices again in fiscal year 22
So far, we have noticed that Tsingtao beer (168hk, Unrated) and uni president (220hk, buy) have raised the prices of some products in January 22. Other companies such as China Resources beer (291hk, buy), Budweiser beer (1876hk, buy), Mengniu (2319hk, buy) and Master Kang (322hk, buy) have raised the prices of some products in fiscal year 21, And may raise prices again in fiscal year 22.
Valuation
We continue to be optimistic about those companies that have the ability to raise prices and can improve the average price by improving the product sales structure. Mengniu is the first choice in our industry because it has the ability to raise prices and continuously optimize the product sales structure, and the price of raw milk has been stable. At the same time, we also recommend unification, taking into account the possibility of price increase and special dividend distribution.
Main catalysts: revenue growth exceeded expectations; Cost control is better than expected.
Main risks: rising raw material costs continue to drive down profit margins.
