DBS Bank believes that as feed costs decrease, the gross margin of modern animal husbandry will maintain its recovery momentum, and profitability will be further unleashed.
According to the latest report from the Zhitong Finance App, DBS Bank recently released a research report, reaffirming the “buy” rating of Modern Animal Husbandry (01117) and affirming the continued improvement in the company's gross margin. DBS Bank believes that as feed costs decrease, the gross margin of modern animal husbandry will maintain its recovery momentum, and profitability will be further unleashed.
A summary of DBS Bank's core views:
organic growth
Modern animal husbandry currently has nearly 450,000 cows. The company plans to achieve an annual output increase of more than 10% by continuing to optimize the herd structure, in particular increasing the proportion of adult dairy cows. The company aims to increase the share of adult dairy cows to approximately 55% by fiscal year 2026 (50.6% at the end of June 2024) to support continued organic growth.
Significant recovery in gross profit
The average annual yield of adult dairy cows in modern animal husbandry reached 13 tons, an increase of 3.2% over the previous year, and is in a leading position in the industry. DBS Bank expects the company's annualized yield of adult dairy cows to achieve single-digit growth in the 2024 fiscal year, supporting the company's stronger rebound in gross profit. Furthermore, as feed costs (such as alfalfa and soybean meal) continue to decline, unit feed costs are expected to drop by about 15% to 1.98 yuan per kilogram in 2024, further benefiting the company.
Raw milk price outlook
Although the average sales price of raw milk in modern animal husbandry fell 10.5% year on year in the first half of 2024, it is still superior to the 11.9% decline in the industry. Given the cash flow pressure faced by small farms, dairy farm consolidation is expected to accelerate in the second half of 2024, which will help ease the downward pressure on raw milk prices.
Maintain a “buy” rating
In view of positive views on the long-term growth prospects of modern animal husbandry, in particular the significant increase in gross profit due to lower feed costs, DBS Bank maintained a “buy” rating for modern animal husbandry, with a target price of HK$0.78.
