Investment Rating - The report assigns a "Buy" rating for the company, with a target price of HKD 3.08 based on a 2026 P/E ratio of 7.5x [2]. Core Views - The company is expected to benefit from an improvement in cash flow and a reversal in the raw milk cycle, positioning it as a direct beneficiary in the industry [1][6]. - The company has a strong market position as the largest raw milk supplier in China, with significant collaboration with its core customer, Yili [6][13]. - The report anticipates a potential acceleration in the clearing of dairy farms, leading to a balance in raw milk supply and demand [6][54]. Financial Forecast and Investment Recommendations - Earnings per share are projected to be -0.05, 0.17, and 0.38 CNY for 2024, 2025, and 2026 respectively [2]. - Revenue is expected to grow from CNY 20.12 billion in 2024 to CNY 22.02 billion in 2026, with a CAGR of 6.4% [3]. - The company’s gross margin is forecasted to improve, with raw milk business gross margin reaching 32% in 2024H1 [25]. Company Overview - The company has expanded its scale through mergers and acquisitions, increasing its number of farms from 38 in 2018 to 96 by 2024H1, with raw milk production rising from 590,000 tons to 3.02 million tons during the same period [17][19]. - Yili has been a major customer, with over 90% of raw milk sales directed to Yili since 2018, ensuring a high sales rate close to 100% [21][6]. Market Dynamics - The report highlights that the decline in raw milk prices has led to increased pressure on dairy farms, with expectations of a reduction in dairy cow inventory by 300,000 to 400,000 heads in 2024 [54][56]. - The average price of fresh milk has decreased from CNY 4.4/kg in August 2021 to CNY 3.1/kg currently, indicating a significant market shift [37][49]. Profitability and Cost Structure - The company’s profitability is expected to improve, with a projected gross margin of 28.3% in 2024H1, benefiting from lower feed costs [25][31]. - The financial burden from biological asset impairments has impacted profits, with a net loss of CNY 470 million in 2024H1 [31][54]. Supply and Demand Balance - The report estimates that achieving a balance in raw milk supply and demand will require a reduction in dairy cow inventory to approximately 5.99 million heads by 2025 [56][58]. - The analysis indicates that if fresh milk demand increases by 3% in 2025, supply-demand balance could be reached by Q3 2025 [56][58].
优然牧业：现金流改善拐点或已至，原奶周期反转直接受益者