Company Profile

BRIGHT DAIRY & FOOD CO., LTD. is a China-based company, principally engaged in the development, production and distribution of dairy products. The Company's products mainly include fresh milk, fresh yogurt, lactobacillus drinks, normal temperature yogurt, milk powder for infants and middle-aged and old people, cheese and butters.

The Company is also engaged in raising and breeding of dairy cow, as well as logistics and distribution businesses.

The Company distributes its products within domestic markets and to overseas markets. (Source: Reuters)Event

BRIGHT DAIRY & FOOD CO., LTD. (“BRIGHT”/ the company) announced its 2022 annual financial results.

In 2022, the company reported CNY 28.215 billion/ CNY 361 million/ CNY 169 million in revenue/ net income attributable to shareholders/ net income deducting non-recurring items, down 3.39%/39.11%/61.08% from a year ago.

In 4Q22, BRIGHT reported CNY 6.83 billion in revenue/ a loss of CNY 9 million in net income attributable to shareholders/ a loss of CNY 113 million in net income deducting non-recurring items, down 4.47%/ 105.98%/ 241.31% from a year ago.

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The full-year revenue saw a decline due to epidemic disruptions, and Shanghai, its headquarters, took the heaviest blow, but its overseas business recovered steadily.

By product categories, the liquid milk/ other dairy products/ husbandry products in 2022 reported CNY 16.091 billion/ CNY 8 billion/ CNY 2.641 billion in revenue, down 5.9%/ down 5.7%/ up 15.3% from a year ago.

The low-temperature products were affected by supply chain disruptions. As for the room-temperature products, yogurt still declined while milk delivered relatively good performance.

By regions, the revenue from Shanghai/ other regions/ overseas in 2022 was CNY 7.419 billion/ CNY 13.513 billion/ CNY 6.910 billion, down 6.9%/ down 5.1%/ up 4.7% from a year ago.

Due to the epidemic disruptions in 2Q22, Shanghai took the heaviest blow and witnessed a double-digit decline and other regions outside of Shanghai also delivered weak performance.

Synlait put efforts in improving the stability of its supply chain, and has achieved obvious outcomes in the stability of raw milk supply, quality and efficiency improvements in production and operation, and in product marketing. It reported CNY 6.921 billion in revenue in 2022,up 2.63% from a year prior while its net income turned losses into profits, at CNY 28.1802 million.

The cost reductions and better Synlait in 2022 pushed up Bright’s gross margin, while its profits were disrupted by non-recurring factors like asset impairments.

The gross margin in 2022 was 18.65%, up 0.30 percentage points from a year earlier, mainly thanks to 1) mild cost reductions in raw milk; 2) better profitability of Synlait.

The average price of March fresh milk is CNY 4.01/ kilogram, down 4.49%YoY and 1.07% MoM, and the full-year costs are expected to reduce steadily.

The sales/ administrative/ R&D/ financial expense rate was 12.31%/3.11%/0.30%/0.56% in 2022, down 0.18pps/up 0.33 pps/down 0.01pps/up 0.17pps, stable expense control.

In addition, the asset impairments in 2022 reduced the company’s profits by CNY 113 billion.

Given above factors, the company’s net margin attributable to shareholders was 1.28%, down 0.75pps from a year ago.

Earnings forecast and investment recommendationAccording to its 2022 annual report, we revised our earnings forecasts and estimated its revenue at CNY 32.137 billion /35.828 billion /39.617 billion, up 13.90%/11.49%/10.58% from a year ago; its net income attributable to shareholders at CNY 685 million /815 million /950 million, up 89.98%/18.94%/16.61% from a year ago; its EPS at CNY 0.50/ CNY 0.59/CNY 0.69, implying a P/E ratio to 20.66x/17.37x/14.90x, based on the closing price on March 20, 2023. Maintain “Outperform”.

Potential risks

intensified competition; hikes in raw material prices; food safety