Citigroup maintains a "buy" rating for URambo with a target price of HKD 2.1.
On August 26th, after URambo released its interim performance, international investment bank Citigroup maintained a "buy" rating for URambo with a target price of HKD 2.1, a premium of 90%. Digging into the deep logic, the strong performance of the company's core raw milk business and effective management strategies contribute to this. URambo's sales volume and gross margin of raw milk for the first half of 2024 exceeded Citigroup's expectations.
In terms of revenue from raw milk, URambo's performance is steady, thanks to the high proportion of specialty milk and the release of production capacity in the central and southern regions. Specialty milk also has high added value and high gross margin characteristics. With the release of subsequent products and the development reserve of specialty milk, the company's profitability will be further enhanced.
In terms of sales volume, URambo also achieved strong growth. The sales volume of raw milk in the first half of 2024 increased by 26%, far exceeding market expectations. This growth is due to continuous capacity release and yield improvement, demonstrating the company's good operational efficiency.
URambo has achieved significant management effectiveness in cost control. During the reporting period, the feed cost per kilogram decreased by 12.9%, non-feed cost decreased by 2.9%, and overall cost decreased by 11%. This is thanks to the company's continuous optimization of cost structure, successfully achieving an overall reduction in unit cost. The management expects that the gross margin will remain at a stable level in the second half of the year, as feed prices further decline and operational efficiency improves.
Citigroup uses the discounted cash flow method to more reasonably reflect the company's long-term development potential. Based on the assumption of a weighted average cost of capital of 7.0% and a long-term growth rate of 2%, a target price of HKD 2.1 is derived. This valuation fully considers the company's growth potential and stable return on net assets. Considering URambo's solid market position and long-term growth potential, Citigroup maintains a "buy" rating and remains optimistic about the company's future profit improvement.