CITIC Lyon believes that demand rebound, fodder costs, and cattle selling prices will be key factors in the short term.
According to the Zhitong Finance and Economics app, CITIC Lyon Securities recently released a research report reiterating its 'outperforming the market' rating for Ch Modern D. CITIC Lyon points out that Ch Modern D has shown strong operational resilience in the face of industry challenges, with particularly significant cost control effectiveness.
CITIC Lyon's main points are as follows:
Overview of performance for the first half of the year
During the reporting period, Ch Modern D's raw milk business achieved growth against the trend, with sales revenue increasing by 1% year-on-year. Despite a year-on-year decrease of about 11% to 3.49 yuan (RMB) per kilogram in the average selling price of raw milk during the period, thanks to a 3% increase in the yield per lactating cow to 0.13 million tons, sales volume increased by 16%. The company's cash EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 19% year-on-year, reaching 1.5 billion yuan.
Weak or sustained prices in the raw milk market
The company's management expects that the average selling price of raw milk in the second half of 2024 will remain basically unchanged from the first half of the year, implying a slight year-on-year decline for the whole year. In addition, as the scale of the top enterprises in the industry continues to expand, the alleviation of supply surplus is expected to be prolonged, further putting pressure on raw milk prices. CITIC Lyon believes that demand rebound, fodder costs, and cattle selling prices will be key factors in the short term.
Cost control has shown results.
The bank specifically pointed out that in the unfavorable environment of falling raw milk prices, ch modern d, with excellent cost control ability, has demonstrated stronger risk resistance compared to its counterparts, with a relatively smaller loss. Looking ahead, the company is expected to continue to increase its productivity, optimize supply chain management, and improve operational efficiency to sustainably increase gross profit. Although the sales and distribution expense ratio may increase slightly in the short term with the increase in total output and the decrease in average selling price, the implementation of long-term cost optimization strategies will bring significant competitive advantages to the company.
Maintain the "outperform the market" rating and target price.
Based on the optimistic expectations for the long-term development prospects of ch modern d, especially the profit potential after the stabilization of raw milk prices, CITIC Securities reiterated the "outperform the market" rating for ch modern d and a target price of 1.00 Hong Kong dollar, corresponding to a 47% upside potential from the closing price on September 3, 2024.
