Key investment points
Recommendation logic: 1. In the short term: the price of raw milk remains high, and dairy enterprises can improve the gross sales difference by upgrading the product structure, reducing the cost and raising the price directly; Although the cost side is under pressure, the profitability is actually improved. 2. In the long run: with the continuous upgrading of product structure, the price war may ease; Yili and Mengniu have fully entered each subdivision track, and pan national and regional dairy enterprises give full play to their respective advantages and compete with the leaders. 3. It is expected that the supply of raw milk will still be in short supply in the short term, and the price will remain high; The matching between supply and demand of raw milk has been improved for a long time, the raw milk cycle has slowed down significantly, the downstream product structure has been upgraded continuously, the competition has eased, the cost rate has decreased, and the profitability will be significantly improved. Double click upward is worth looking forward to, and Inner Mongolia Yili Industrial Group Co.Ltd(600887) ( Inner Mongolia Yili Industrial Group Co.Ltd(600887) ) is recommended.
When the price of raw milk is high, the cost side of dairy enterprises is under pressure, but the overall profitability is improved. In 2021h1, the net interest rates of Yili and Mengniu were 9.4% and 6.4% respectively, with a year-on-year increase of 1.5pp and 3.4pp respectively, which improved their profitability in the raw milk rise cycle. 1) Dairy enterprises focus on the development of high-end liquid milk. In 2021, Jindian and terensu accounted for about 18% of the total market, constantly squeezing the share of medium and low-end brands to achieve rapid growth, and have become 10 billion single products; The market share of basic white milk of Yili and Mengniu mother brands is basically the same. With the gradual improvement of consumption level, high-end milk is more popular, and the growth rate leads liquid milk. 2) In 2021h1, the sales expense rates of Yili and Mengniu were 22% and 28% respectively, with a year-on-year decrease of 1.8pp and 2.6pp respectively, and the industry promotion slowed down. 3) In this round of raw milk price increase cycle, Yili and Mengniu only raised the price of some basic white milk slightly, which still has more room for price increase than other food enterprises.
The product structure is upgraded to the main theme of long-term development, and pan national and regional dairy enterprises give full play to their respective advantages and dislocation competition. 1) Jindian and terensu have further upgraded their packaging and nutritional components to make milk from basic nutrition to high-end nutrition, which is in line with the background of consumption upgrading and healthy consumption. This part of the competition focuses more on the continuous upgrading of products, and the traditional methods of promotion and price war are no longer applicable. The overall profitability of high-end products will increase in the future. 2) Yili and Mengniu have fully entered the subdivided categories and seize the market share of other enterprises with their strong industrial chain, channel layout and brand strength; Pan national dairy enterprises and regional dairy enterprises are more suitable to give full play to regional advantages and innovative dislocation competition.
Short term raw milk prices will remain high. 1) The income level of residents has increased steadily, and the consumption upgrading trend is obvious, which provides power for the growth of dairy consumption; After covid-19 epidemic, consumers’ health awareness was improved, which promoted the high demand for dairy products. 2) The stock of dairy cows decreased steadily, the unit yield increased, and the supply of raw milk increased slowly. It is expected that the gap between supply and demand will continue in the short term; It takes about 2 years for dairy cows to make up the fence to output. Making up the fence will not lead to the rapid growth of raw milk supply in the short term. 3) Feed prices remain high and the cost of dairy farming increases, supporting the price of raw milk. 4) The global raw milk output is steadily superimposed on the upgrading of China’s product structure, and the import price of large bags of powder is rising, which will no longer have a price impact on domestic raw milk.
It is expected that the long-term raw milk cycle will slow down significantly and the profitability of dairy enterprises will continue to improve. 1) The top dairy enterprises and large farms have formed participation and holding or strategic cooperation relations, and the matching between upstream and downstream has been improved. In 2019, the proportion of large-scale pastures with more than 100 heads has reached 64%. Large-scale pastures often have in-depth cooperation with dairy enterprises, which can adjust the output of fresh milk according to the needs of dairy enterprises, so as to improve the matching degree of overall supply and demand; The impact of supply fluctuation caused by retail investors’ irrationality will be limited. 2) New Zealand will ban the export of live animals from 2023. After the ban is implemented, the expansion of the number of dairy cows will rely more on China’s breeding; The barriers to new pasture construction are high, which makes it difficult for small and medium-sized retail investors to enter in large numbers. 3) Consumers prefer high-end liquid milk with leading taste and nutrition, mainly using fresh milk as raw materials. The substitution of imported large bags of powder is weakened, and the demand for domestic raw milk will be further expanded. 4) The price cycle of raw milk slows down. With the continuous upgrading of the product structure of dairy enterprises and the rationalization of cost investment, the profitability of dairy enterprises will continue to grow steadily, and the cyclical fluctuation may slow down. Double click upward is worth looking forward to.
Recommended target: Inner Mongolia Yili Industrial Group Co.Ltd(600887) ( Inner Mongolia Yili Industrial Group Co.Ltd(600887) ). It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be 8.5 billion yuan, 10.7 billion yuan and 12.7 billion yuan respectively, and EPS will be 1.33 yuan, 1.67 yuan and 1.99 yuan respectively, corresponding to 27 times, 21 times and 18 times of PE respectively. Maintain the “buy” rating.
Risk tips: food safety risks; The upgrading of product structure is less than expected; Dairy consumption was lower than expected.
