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 first-half financial numbers of 2023.

In 1H23, the company reported its revenue/ net income attributable to shareholders/ net income deducting non-recurring items at CNY 14.139 billion/ CNY 338 million/ CNY 317 million, down 1.88%/ up 20.07%/31.03% from a year ago.

In 2Q23, BRIGHT turned in revenue/ net income attributable to shareholders/ net income deducting non-recurring items of CNY 7.068 billion/ CNY 151 million/ CNY 142 million, down 1.34%/ up 30.14%/ 39.00% from a year ago.

Comments

The growth of liquid milk in Q2 improved from a quarter earlier, while Synlait saw fluctuations.

By product categories, in the reporting period, liquid milk/ other dairy products/ husbandry products reported revenue of CNY 8.005 billion/ CNY 4.189 billion/ CNY 1.053 billion, accounting for 56.9%/ 29.8%/7.5%, up 3.1%/ down 5.1%/ down 27.2% from a year ago.

In 2Q23, the liquid milk/ other dairy products/ husbandry products posted revenue of CNY 3.934 billion/ CNY 2.037 billion/ CNY 577 million, up 5.4%/ down 9.8%/ down 23.5% from a year ago. The quarterly acceleration of liquid milk in Q2 showed its better momentum.

The fresh milk is expected to see double-digit growth, low-temperature milk is to achieve positive growth, while room-temperature products will likely take on a falling momentum, with white milk seeing a moderate decline.

Due to less sales volume of feed and raw milk, the revenue from husbandry products saw greater declines.

The gross margin lifted and the selling expense rate stabilized, showing its operation quality in China improved.

In 1H23, the gross margin was 20.12%, up 1.01pps from a year ago, with Q2 at 20.28%, up 1.86pps from a year ago, which was mainly due to less costs of raw milk in the upstream, at CNY 4.04 in Q1 and CNY 3.87 in Q2, down 4.61% and 6.90% from a year ago.

The selling expense rate in 1H23 was 12.16%, down 0.02pps year on year, 12.55% in Q2, up 1.51pps from a year ago, which was mainly due to less investments in expenses in 2Q22 over the epidemic. The overall selling expense rate is expected to maintain stable.

Given the above factors, the net margin attributable to shareholders in 1H23 climbed by 0.44pps to 2.39%, and 2.13% in Q2, up 0.52pps from a year ago.

In addition, Synlait made CNY 85 million in 1H23, contributing CNY 33 million to BRIGHT’s profits.

The net margin of Synlait was 2.25%, down 1.17pps. Deducting the impacts of Synlait, the profit growth in China was 32%, net margin was 2.94%, up 0.77pps from a year ago.

Earnings forecast and investment recommendation

According to the semi-annual earnings report, we revised our earnings forecasts and estimated its revenue at CNY 29.72 billion/ CNY 33.125 billion/ CNY 36.631 billion in 2023/2024/2025, up 5.33%/11.46%/10.59% from a year ago, its net income attributable to shareholders at CNY 648 million/ CNY 770 million/ CNY 896 million, up 79.79%/18.80%/16.25%, and its EPS at CNY 0.47/CNY 0.56/CNY 0.65, implying a P/E ratio to 22.02x/18.54x/15.95x. Maintain “Outperform”.

Potential risks

intensified competition; hikes in raw material prices; food safety