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From: Harbor Business Observation
Harbor Business Observation Liao Ziwen
Recently, the hot drama My Altay has aroused netizens' infinite yearning for the beautiful scenery of Xinjiang. The personnel and objects described by writer Li Juan are placed in the beautiful scenery of Altay, attracting imagination.
In addition to the beautiful scenery of Xinjiang, Xinjiang featured dairy products are also often active in the sharing posts of major netizens. Recently, Xinjiang dairy enterprises Tianrun Dairy The first quarter report of 2024 and the annual performance and operation of 2023 were released. From the perspective of the data side, we can see that the profit side of this Xinjiang dairy enterprise is under pressure, and most of its revenue is contributed by Xinjiang.
01
The first quarter saw a slight increase in revenue and a sharp decrease in net profit
In the first quarter of 2024, Xinjiang Tianrun Dairy Co., Ltd. (hereinafter referred to as: Tianrun Dairy, 600419.SH) achieved a revenue of 641 million, up 1.47% year on year; The net profit attributable to the parent company was 4.5435 million, down 91.74% year on year.
Tianrun Dairy said that the profit decline was mainly due to the consolidated losses of Xinnong Dairy and the company's efforts to eliminate cattle with low production value. At the same time, the company pointed out that in the first quarter of 2024, the situation of weak market consumption demand and excess milk supply has not been effectively alleviated, the price war of dairy products market is becoming increasingly fierce, the price of raw milk and the sales price of cattle continue to decline, and the company's performance is under great pressure.
According to the research report released by Huaxin Securities, the company's total revenue in the first quarter of 2024 was 641 million yuan (an increase of 1% at the same time), and the net profit attributable to the parent company was 500 million yuan (a decrease of 92% at the same time). The short-term pressure on the profit side was mainly caused by the weak increase in consumer demand/fierce price war in the dairy market/periodic decline in raw milk prices and cattle sales prices.
But looking ahead, the profit side of Tianrun Dairy has shown a downward trend. In 2023, the company will achieve a revenue of 2.714 billion yuan, a year-on-year increase of 12.62%; The net profit attributable to the parent company was 142 million, down 27.71% year on year. Among them, in the fourth quarter of the same year, the company realized net profit attributable to the parent company and non net profit deduction of -473400 and -4012600 respectively.
In terms of the detailed description of major changes in the business type, profit composition or profit source of Tianrun Dairy, the company pointed out that the company acquired 100% of the equity of Xinnong Dairy in May 2023, and incorporated it into the scope of consolidated statements on June 1, 2023. As of the appraisal base date, its book net assets were 183 million yuan, the transaction price was its equity appraisal value of 326 million yuan, the appraisal appreciation was 143 million yuan, and the appraisal appreciation rate was 77.99%.
After the equity delivery, the original shareholders of Xinnong Dairy paid the company 12 million yuan of profit and loss during the transition period, so the actual cost of the company's acquisition of Xinnong Dairy was 314 million yuan. In 2023, the impact of Xinnong Dairy on the company's profits will be -95.35 million yuan, of which: 1. Xinnong Dairy will achieve a total profit of -56.9 million yuan from June to December 2023 (including 5.92 million yuan of financial expenses); 2. The depreciation and amortization of the value-added part of Xinnong Dairy decreased the company's profit by 27.37 million yuan; 3. The company raised 651 million yuan of capital due to acquisitions, with an average borrowing rate of 2.84%. From June to December, the interest expense increased by 11.08 million yuan.
However, from the perspective of a longer time line, the pressure on net profit in 2023 will be the first drop in nine years. According to Snowball data, from 2015 to 2022, Tianrun Dairy realized net profits attributable to the parent company of 50.8608 million, 78.2733 million, 99.1265 million, 114 million, 140 million, 147 million, 150 million and 196 million, with year-on-year growth of 304.94%, 53.90%, 26.64%, 15.19%, 22.25%, 5.62%, 1.52% and 31.27% respectively. Obviously, from the data side, the company's profit growth in 2020 and 2021 has shown a significant downward trend. Although there is a significant growth in 2022, the profit side growth in 2023 ushered in the first decline.
In addition, Tianrun Dairy disclosed that in 2024, the company plans to sell 320000 tons of dairy products, and is expected to achieve an operating income of 3 billion yuan (consolidated statements).
02
Profit forecast cut by securities companies
Under the pressure of performance, a number of securities companies have lowered their earnings forecasts for Tianrun Dairy.
Soochow Securities Said that the performance in the first quarter of 2024 was lower than expected, The revenue forecast for 24-26 years was lowered to 2865/3113/3379 million yuan (previously expected to be 30/335/374 million yuan),+6%/+9%/+9% year-on-year, and the net profit attributable to the parent company was lowered to 130/160/180 million yuan (previously expected to be 180/220/270 million yuan), - 8.7%/+23%/+16% year-on-year, corresponding to PE of 23/19/16x respectively, maintaining the "overweight" rating.
According to the research report issued by SDIC Securities, It is estimated that the company's revenue growth rate in 2024-2026 will be 11.9%, 10.4% and 9.5% respectively, and the net profit growth rate will be 16.2%, 50.8% and 23.3% respectively. Considering the current downward phase of milk prices, the company's short-term profits will be greatly affected by milk prices and cattle losses, and new farmers will have a certain drag on the company's profits, but considering the future upward phase of milk prices, The company is expected to fully benefit from the cost dividend brought by the self-sufficiency rate of plateau milk, and the profit elasticity is expected to be fully released. The investment rating of Buy-A is given. The target price for six months is 11.34 yuan, corresponding to 22xPE in 2024.
Cinda Securities It said that due to the weak downstream demand and the excess upstream milk supply, the growth rate of the company's profit side this year is expected to be lower than that of the income side. From a longer perspective, after the company fully integrates the new agriculture and dairy industry and rebalances supply and demand, the company is expected to further demonstrate strong growth. It is estimated that the company's EPS in 2024-2026 will be 0.44/0.50/0.71 yuan, corresponding to 22X/19X/14XPE in 2024-2026, respectively, to maintain the "buy" rating of the company.
Cinda Securities said that its profits declined due to the consolidation of new farmers and the elimination of cattle. From the perspective of the consolidated statement of new agriculture, first of all, it is speculated that the gross profit rate was negatively affected, with a year-on-year decrease of 3.62 percentage points. Secondly, the management expense rate was affected by the merger, with a year-on-year increase of 1.16 percentage points. Third, the financial expense ratio increased by 0.96 percentage points year on year due to the increase of the company's financing expenses for the acquisition of new agricultural dairy industry. From the perspective of eliminating cattle, the proportion of non operating expenditure in the first quarter was affected by this, with a year-on-year increase of 3.85 percentage points. Therefore, the company's net profit margin attributable to the parent company in the first quarter was 0.71%, a year-on-year decrease of 8.00 percentage points, and the profit declined.
According to the research report released by Huafu Securities, considering the weak recovery of the demand side and the short-term impact of consolidation, it is estimated that the company's revenue in 2024-2026 will be 2.998/3374/3767 billion yuan (the value before 2024/2025 will be 3.209/3688 billion yuan respectively), and the net profit attributable to the parent company will be 1.79/203/242 billion yuan (the value before 2024/2025 will be 2.21/261 billion yuan respectively). However, Tianrun's outbound strategy is clear, and its market expansion outside Xinjiang is still in steady progress. It is expected that there is still room for growth in the future. Therefore, the company will be given 22XPE in 2024, corresponding to a target price of 12.30 yuan/share, and maintain the buy rating.
03
Low price products seize the market? The proportion of income in Xinjiang is relatively high
Tianrun Dairy is mainly engaged in dairy product manufacturing and animal husbandry. Its operating income is mainly from dairy product sales, and its operating profit is mainly from dairy product sales.
The main products of the company include normal temperature dairy products, low temperature dairy products, livestock products, etc. In 2023, the revenue of normal temperature dairy products and low-temperature dairy products of Tianrun Dairy will be 1.53 billion and 1.08 billion respectively; The gross profit margin was 18.81% and 21.54%, respectively, up 2.74 percentage points and 0.58 percentage points year on year.
In the record sheet of investor relations activities released by the company in early May, the company said that "will the company's product pricing be adjusted under the current fierce market competition?", The core products will maintain a relatively stable price system, especially the mainstream core products such as white milk, bricks and barrel acid of small size products. On the other hand, the company will also launch relatively low-end products such as Baili bags to seize the market. At the same time, the company will have some policies to give dealers the power to sell the company's products and help restore the market.
Bai Wenxi, vice president of China Enterprise Capital Alliance, said to Harbor Business Watch that it is a common market competition strategy for local dairy enterprises to launch low-end products to seize market share, especially in the face of fierce market competition and challenges from large dairy brands. This strategy can help enterprises quickly expand market share, especially among price sensitive consumer groups. However, this strategy may have a negative impact on the company's profit margin. Low end products usually have low profit margins. If the sales cost cannot be effectively controlled, the overall profit may be reduced. In addition, long-term dependence on the low price strategy may affect the brand image, leaving consumers' perception of products at the low-end level and affecting the company's expansion to the high-end market.
Low price products occupy the other side of the market. Tianrun Dairy contributes most of its revenue in Xinjiang.
In 2023, Tianrun Dairy's revenue in Xinjiang and outside Xinjiang will be 1.451 billion and 1.249 billion respectively; In 2023, the company's sales channels and direct sales channels will achieve revenue of 2.401 billion and 299 billion, and distribution will contribute most of the revenue. Taking the number of dealers as an example, in 2023, the number of dealers in and outside Xinjiang will be 388 and 542 respectively, with an increase of 33 and 171 respectively.
Tianrun Dairy said that as a leading regional dairy enterprise in Xinjiang, the company has established a high market position in the Xinjiang market with a strong comprehensive competitiveness and a leading market share. In recent years, the company has accelerated the development of markets outside Xinjiang, and at the same time, with the help of new media such as the network platform, it has implemented all-round marketing. The sales scale of the company's markets outside Xinjiang has increased year by year. However, the high dependence on the domestic market may still bring some risks to the company's operation. If the regional market conditions covered by the company's dairy products change adversely and the company fails to make timely adjustments, the company will face certain operational risks in the short term.
Tianrun Dairy further pointed out that in the future, the company will seize the historical opportunity of the rapid development of China's dairy industry, continue to set low temperature yogurt as the core, establish the product development idea of leading low temperature, strengthening normal temperature and breaking through milk drinks, integrate and adjust the marketing system, and extend to markets outside Xinjiang with the market in Xinjiang as the core. However, at present, China's dairy industry has formed a competitive pattern in which the market share of the national first tier brands is leading and the regional leading brands continue to grow. As the country continues to tighten the supervision of the dairy industry and strengthen the industry integration, in the future, the national first tier brands may purchase more regional market scale dairy enterprises through mergers and acquisitions, and continue to expand their brand awareness and market influence by controlling upstream milk sources, investing in expansion of production and other ways, thus intensifying market competition. If the company fails to take effective measures to cope with the competition in the process of market development outside Xinjiang, it may cause the company's market development outside Xinjiang to be blocked.
Bai Wenxi pointed out that for regional dairy enterprises like Tianrun Dairy, going out of Xinjiang to expand the national market will face many challenges, including brand awareness, market acceptance, logistics distribution, local regulatory restrictions and direct competition with national dairy giants. For example, Yili, Mengniu and other national dairy giants have strong brand influence, mature distribution network and high market penetration, which brings great challenges to the expansion of local dairy enterprises.
Bai Wenxi further pointed out that the expansion strategy of Tianrun Dairy in recent years is to "use Xinjiang resources to build the national market", and take normal temperature milk as the main product. This shows that tomorrow's dairy industry may make use of its resource advantages in Xinjiang to gain market competitiveness through product differentiation in the process of expansion. Differentiated competition is one of the main strategies for local dairy enterprises in the face of national brand competition. By developing products with unique selling points, such as special flavors, organic products, special nutritional formulas, etc., local dairy enterprises can attract specific consumer groups and occupy a place in the market.
Bai Wenxi said, "In short, when faced with market competition and expansion challenges, Tianrun Dairy has adopted low-cost product strategies and differentiated competition strategies. These strategies may have an impact on the company's profit margin and brand image, but also help the company to maintain its competitiveness and market share in the fierce market competition."
In 2023, Tianrun Dairy Sales Company will set up Shandong Branch. In addition, the 2023 financial report disclosed that Shandong Tianrun Qiyuan Factory has gradually changed from the construction period to the operation period. The first phase of the dairy products processing project with an annual output of 150000 tons has been completed and will be put into trial operation on November 28, 2023.
When asked, "How about the sales and channel expansion of Shandong factory?", the company said that "Jiali" is a brand new brand in the market outside Xinjiang. It will take some time to form brand influence and popularity, and the company will give some policy support to dealers. As offline channels are firmly controlled by various small and medium-sized dairy enterprises, it is difficult to promote them. Relatively speaking, online channels can help brands break through. The company is negotiating cooperation with e-commerce operators. The company will give play to the linkage role of Shandong Sales Branch and Qihe Factory, for example, launch market promotion activities and Tiaoyin live broadcast room promotion in holidays. At the same time, actively build offline channels, make full use of the local resource advantages of the other shareholder, and sell the products of Shandong Qihe Factory in its exclusive stores. (Produced by Gangwan Finance)
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