光明乳业(600597.CN)

Bright Dairy:Margin expansion to drive growth;upgrading to Hold

时间:16-05-03 00:00    来源:德意志银行

Keen competition to continue, but expecting improving margin.

We expect Bright’s 2016 sales growth to be pressured by increasingcompetition, given it has weaker distribution channels and a lower marketingbudget compared to other national dairy names. However, we expect lowerraw material prices and management’s cost control measures to drive earningsgrowth in 2016-17. We forecast 1.8% sales growth and 12% earnings growthin 2016. Upgrading to Hold.

1Q16: strong earnings growth on lower input costs.

Bright reported a 1.6% yoy sales decline in 1Q16, due mainly to weak macrodemand and intensive competition. Gross margin expanded 620bps yoy withthe lower raw material price, partly offset by higher selling expense/sales ratio(up 3.4ppts) on higher advertising expenses. Net profit was up 23% yoy toRmb118m, representing 25% of our full-year earnings forecast.

Outlook: margin expansion to be major earnings driver.

We expect competition to remain intensive for the dairy sector due tooversupply in the upstream and slowing downstream demand. We expectBright’s sales growth to be under pressure, given it is weaker in distributionchannels and more prudent in its marketing spending. New management plansto strengthen cost control and we expect such measures to improve itsmargins and drive earnings growth in 2016.

2016/17E net profit revised up 4%/7%; upgrading to Hold.

Our new earnings model no longer consolidates Tnuva, as the companysuspended the acquisition plan and new share issue, and, therefore, ourconsolidated EPS is revised down 14-15% in 2016-17E. For Bright standalone,we revise up net profit by 4-7% in 2016-17E, to factor in higher operatingmargin. We derive our new target price of Rmb11.0 based on the DCF method(WACC 9.5%, TGR 2%). Upside risk: successful new product launches;downside risk: increasing competition. More details on valuation and risks p 6.