Industry dynamics
Industry status
According to the data of the Ministry of agriculture, from February 9 to February 16, 2022, the price of raw milk in China was about 4.25 yuan / kg, with a chain comparison of – 0.5% and a year-on-year comparison of – 0.9%. We believe that the fluctuation of milk price is mainly caused by seasonal factors; Recently, the price of overseas large bags of powder has continued to rise month on month, mainly due to the year-on-year decline in the monthly output of overseas raw milk. At present, the demand for white milk and fresh milk is strong, while the overall supply of raw milk outside China is still tight, and the cost of dairy farming is still high. Therefore, we expect that China’s milk price may continue to be high and fluctuate slightly in 2022. Considering the high price of raw milk and the current increased profit demands of dairy enterprises, we suggest paying attention to the improvement of gross sales difference and profit margin under the relatively slow competition of dairy enterprises.
Commentary
Fonterra whole milk powder prices rose month on month, and New Zealand’s raw milk production continued to decline year-on-year in January. On March 1, 2022, the average auction price of all Fonterra products was $5065 / ton, a month on month increase of + 5.1% and a year-on-year increase of + 19.7%; Among them, skimmed milk powder was USD 4481 / ton, with a month on month increase of + 4.7% and a year-on-year increase of + 35.7%; Whole milk powder was USD 4757 / ton, with a month on month increase of + 5.7% and a year-on-year increase of + 9.0%. On the supply side, the raw milk production of New Zealand / the United States decreased year-on-year in January 2022, and the raw milk production of Europe decreased slightly year-on-year in 2021.
Price side: in late February 2022, China’s corn fell year-on-year, the global corn, Chinese wheat and Chinese soybean meal prices rose year-on-year, and the feed cost of dairy farming is still high. According to the data of the Ministry of agriculture, from February 9 to 16, 2022, the price of raw milk in China was 4.25 yuan / kg, with a chain comparison of – 0.5% and a year-on-year comparison of – 0.9%. We expect that China’s milk prices may remain high and fluctuate slightly in 2022.
Supply side: the cumulative value of China’s dairy products output in 2021 was 30.32 million tons (year-on-year + 9%); In 2021, China imported 1275000 tons of packaged milk, a year-on-year increase of + 30.2%. In the same period, China imported 996000 tons of packaged milk, a year-on-year increase of – 4.3%; The year-on-year growth rate of dairy 4q output (9.5%) was higher than that of 3q (1.7%), mainly due to the reduction of inventory pressure, the recovery of dairy consumption and the advance of the Spring Festival.
Demand side (CICC Shangchao data): in January 2022, the sales of liquid milk / yogurt were + 41.9% / + 25.1% year-on-year, and the cumulative ASP was + 5.8% / + 5.5% year-on-year, indicating the upgrading of the industry structure. Liquid milk: in January 2022, Yili / Mengniu / Guangming’s cumulative sales increased by + 53.7% / + 49.1% / + 12.6% year-on-year. Yogurt: in January 2022, Yili / Mengniu / Guangming’s cumulative sales increased by + 38.4% / + 9.1% / + 27.6% year-on-year. Key brands of liquid milk: in January 2022, the cumulative sales of Jindian / terensu were + 88.5% / + 75.9% year-on-year, and the average price was – 1.9% / – 6.6% year-on-year. Key brands of yoghurt: in January 2022, the cumulative sales of amuxi / Chunzhen / moslian were + 56.4% / + 18.4% / + 57.8% year on year, and the average price was – 1.7% / + 2.9% / – 5.8% year on year. Our grassroots research shows that in recent two months, the mobile sales of Yili and Mengniu normal temperature liquid milk terminals have achieved good growth, and the promotion is also at a relatively healthy level; At present, the inventory days of dealers are within a reasonable range. We expect that the liquid milk revenue of 1q22 downstream dairy enterprises is expected to achieve double-digit growth.
Valuation and recommendations
Maintain individual stock profit forecast and target price. Downstream enterprises recommend normal temperature liquid milk leading Inner Mongolia Yili Industrial Group Co.Ltd(600887) , Mengniu Dairy.
Risk
Demand growth is lower than expected; Increased competition; The price of raw milk fluctuates greatly; Food safety issues.
