光明乳业(600597.CN)

Bright Dairy Alert:1H16result beat on strong gross margin expansion

时间:16-08-29 00:00    来源:德意志银行

1H16sales in line but net income beat

Bright reports 1H16results with 0.4%/20.2% increase in sales/net profit. Salesgrowth tracks in-line with DB’s 2016forecast at 1.8%, but net profit is betterthan our 2017forecast at 12% yoy growth, helped by better than expectedgross margin expansion. On quarterly basis, the sales/net profit was up by2.4%/18.1% yoy in 2Q16.

Gross margin expansion is main driver of sales growth

Bright’s gross margin expands 650bps yoy to 41.4% in 1H16. By segment, theliquid milk and other dairy products expand 710bps/780bps yoy to 50.4% and21.6% respectively. We think this is helped by lower raw milk cost, mixupgrade and new management’s stronger cost control.

SG&A/sales increased on higher A&P spending

SG&A/sales increase 380bps yoy to 35.4% in 1H16, mainly due to the risingadvertisement expense/sales ratio, which increased from 230bps yoy to 6.7%in 1H16, while the promotion remain stable YoY. We think this is in-line withthe industry trend that large downstream dairy companies target to reduceprice promotions but increase the advertisement to strengthen branding.

2H16outlook: margin expansion should to driver earnings growth

We expect Bright’s sales growth to remain sluggish in 1H16due to 1) weakgrowth of industry demand, and intensive competition in its UHT yoghurtMosilian, given both Yili and Mengniu have allocate high marketing budget forthe segment. Yet helped by declining raw milk price and mix upgrade, weexpect margin expansions continue to be the company’s major earnings driver.

Raised price target by 13% to Rmb12.4; maintaining Hold on valuation

We revised earnings forecast by 8-14% to factor in a higher gross marginhelped by lower raw milk cost and mix upgrade. We derive our new targetprice of Rmb12.4based on the DCF method (WACC 9.5%, TGR 2%).Maintaining Hold given it is trading at 33x P/E, which is similar to its historicalaverage P/E in past 5years but 50% premium to its peer group at 21x P/E.