1. business and industrial
2. agriculture and forestry
3. farms and ranches

Sunny Kwok 郭日升
公司报告：中国辉山乳业 (06863 HK)
+852 2509 2642
[email protected]
1 April 2015
Grass to Glass Model Alleviates Falling Milk Price Pressure
垂直整合业务模式减轻原奶价格下滑的负面影响
Grass to Glass Business Model. Huishan engages in dairy farming, liquid
milk and milk powder businesses. In Sept. 2014, Huishan had 162,394 heads
of dairy cows. The Company also feeds its dairy cows with self-produced
alfalfa and corn silage. Huishan’s liquid milk market share in Northeast China
and IMF market share in Liaoning in 2013 were 19.5% and 9%, respectively.
Huishan is promoting its fresh milk products and it has significant advantages
over dairy manufacturers in Liaoning. Huishan set up a subsidiary with Zongyi
to expand its business to Jiangsu. In addition, Huishan will establish a JV with
FrieslandCampina and distribute new IMF products. We expect CAGRs of
Huishan’s turnover and adjusted net profit to be 21.1% and 17.5% during
FY14-FY17, respectively. The Company’s adjusted EPS is expected to be
RMB0.110, RMB0.132 and RMB0.166 in FY15-FY17, down 2.5% in FY15 but
up 19.6% and 26.0% in FY16-FY17, respectively.
GTJA Research 国泰君安研究
Company Report: China Huishan Dairy (06863 HK)
Accumulate
Rating:
Initial
评级：
收集 (首次研究)
6-18m TP 目标价:
HK$1.60
Share price 股价：
HK$1.410
Stock performance
股价表现
20.0
% of return
10.0
Dairy farming sector’s valuation is under pressure on weak demand of dairy
products in China. However, Huishan’s net profit is less sensitive to raw milk
price fall as the Company consumes roughly 60% of its own total raw milk
output, which is much higher than at most 20% for its peers. Current share
price represents over 30% discount to its historical valuation. We initiate
“Accumulate” on Huishan with a TP of HK$1.60, which represents 11.6x,
9.6x and 7.6x FY15-FY17 adjusted PER, respectively.
从田间到餐桌的业务模式。
从田间到餐桌的业务模式。辉山主要从事奶牛养殖、乳制品及乳粉生产业务。于 2014 年 9
0.0
(10.0)
(20.0)
(30.0)
(40.0)
(50.0)
Apr-14
Jul-14
Sep-14
月，辉山拥有 162,394 头奶牛。公司也使用自己种植的苜蓿草及玉米青贮饲养奶牛。另一
Dec-14
HSI
Mar-15
Huishan Dairy
方面，辉山的液态奶产品在东北地区的市场份额于 2013 年为 19.5%，而其婴幼儿配方奶
粉产品在辽宁地区的市场份额为 9%。
Change in Share Price
股价变动
辉山于辽宁推广其拥有巨大竞争优势的鲜奶产品。辉山与综艺成立子公司将乳制品全产业
链的经营模式推扩至江苏。再者，辉山将与菲仕兰成立合营企业销售新的婴幼儿配方奶粉。
17.5%。
。公司每股调整后净利于 2015-2017 财年预期将分别达到人民币 0.110 元、0.132
元及 0.166 元，于 2015 财年下降 2.5%但于 2016 及 2017 财年分别上升 19.6%及 26.0%。
由于国内乳制品需求疲弱，奶牛养殖行业估值受压。然而，辉山自用原料奶占比约为 60%，
3M
3 个月
1Y
1年
6.8
5.2
(35.3)
6.0
0.1
(47.1)
1.4
1.3
1.7
Abs. %
绝对变动 %
Rel. % to HS index
相对恒指变动 %
Avg. share price(HK$)
平均股价（港元）
我们预期辉山
及
我们预期 辉山收入及
辉山 收入及调整后
收入及 调整后净利于
调整后 净利于 2014-2017 财 年的复合年均增长率分别为 21.1%及
1M
1 个月
Source: Bloomberg, Guotai Junan Int ernat ional.
China Huishan Dairy 中国辉山乳业 (06863 HK)
远高于同业的最多 20%，辉山净利受生鲜乳价格下跌的影响较少。现价较历史估值有超过
30%折让。我们首予
我们首予“
我们首予“收集”
收集”的投资评级，
的投资评级，目标价为
目标价为 1.60 港元，
港元，相当于公司 2015 财年、
Year End
Turnover
Net Profit
EPS
EPS
PER
BPS
PBR
DPS
Yield
ROE
年结
收入
股东净利
每股净利
每股净利变动
市盈率
每股净资产
市净率
每股股息
股息率
净资产收益率
3/31
(RMB m)
(RMB m)
(RMB)
(△%)
(x)
(RMB)
(x)
(RMB)
(%)
(%)
2,552
945
0.082
110.2
13.7
0.512
2.2
0.000
0.0
27.9
FY14A
3,530
1,249
0.096
17.0
11.7
0.916
1.2
0.022
1.9
13.1
FY15F
4,240
1,322
0.092
(4.6)
12.3
1.029
1.1
0.023
2.0
9.6
FY16F
5,247
1,530
0.107
16.0
10.5
1.119
1.0
0.027
2.4
10.2
FY17F
6,665
1,930
0.135
26.5
8.3
1.231
0.9
0.034
3.0
11.7
FY13A
Shares in issue (m) 总股数 (m)
Market cap. (HK$ m) 市值 (HK$ m)
3 month average vol. 3 个月平均成交股数 (‘000)
52 Weeks high/low (HK$) 52 周高/低
14,320.1
20,191.3
23,798.1
2.290 / 1.200
Major shareholder 大股东
Free float (%) 自由流通比率 (%)
FY15 Net gearing (%) 15 年净负债/股东资金 (%)
FY14-17 PEG (x) 市盈率/增长率 (倍)
Yang Kai 51.6%
48.4
25.2
1.0
Source: the Company, Guotai Junan International.
See the last page for disclaimer
Page 1 of 26
Company Report
2016 财年及 2017 财年核心市盈率分别为
、9.6 及 7.6 倍。
核心市盈率分别为 11.6、
COMPANY BACKGROUND
integrated dairy companies in China. The Company was only established in 2009 but the history of “辉山 (Huishan)” brand
can be traced back to the early 1950’s. Huishan has the second largest herd of dairy cows in China. The Company engages in
planting and processing of various agricultural products such as alfalfa, corn silage and oats in Liaoning. Huishan feeds dairy
cows with its self-produced alfalfa and corn silage and the Company’s liquid milk (ultra-high temperature (UHT) milk, milk
1 April 2015
“Grass to Glass” Business Model. China Huishan Dairy (“Huishan” or “the Company”) is one of the most vertically
beverages, yogurt and fresh milk) and milk powder products (non-dairy creamers, D90 whey powder and infant milk formula
powder) are made from raw milk produced by its own farms. Huishan believes “Grass to Glass” business model represents the
best solution to address the lack of accountability in China’s dairy industry. The Company’s brands and products have never
been associated with any food safety incidents.
Step Out from Liaoning and Expand into Jiangsu. In Nov. 2014, Huishan has entered into a formal JV agreement with
Alpha Spring, a subsidiary of Zongyi Group and a pre-IPO investor of Huishan, to establish a JV in Yancheng, Jiangsu for
distributing consumer dairy products to Eastern China. Huishan will hold 65% equity interest in the JV, while Zongyi holds the
rest. The initial investment for setting up the JV is RMB1,000 million but the project will require a funding of up to RMB2,500
million for the period between Sept. 2014 and Dec. 2018. The population of targeted market in Eastern China is estimated to
be approximately 226 million and five times that of Northeast China where the Company’s sales are primarily carried out at the
moment.
JV with FrieslandCampina. Huishan will establish a 50-50 JV with FrieslandCampina for the manufacture, market and sale of
infant milk formula (IMF) in China and the JV was approved by MOFCOM on 25 March 2015. FrieslandCampina will pay
while FrieslandCampina will grant an exclusive licence to the JV for marketing, distribution and sale of IMF products under an
existing brand of the FrieslandCampina. Both Huishan and FrieslandCampina will continue their own IMF businesses
separately. The JV will initially utilise the existing sales and distribution network of FrieslandCampina and will develop its own
new networks in the long run. FrieslandCampina has the right to increase its shares in the JV and has also committed to
investing at least US$30 million by purchasing Huishan’s shares on the market. These shares are subject to a six year lock-up
period.
Two Pre-IPO Investors Left but One Cornerstone Investor Increased Shareholdings. Huishan was listed on the Hong
Kong Stock Exchange on 27-Sept-2013 at an offer price of HK$2.67/share. The net proceeds received by the Company
amounted to HK$7,545 million and was/to be applied for importing heifers, construction of dairy farms, feeds processing plants,
liquid milk production plant and milk powder production plant, leasing land for feeds plantation, expansion of distribution
network as well as general working capital. Currently, Mr. Yang Kai and Ms. Ge Kun collectively own 51.6% equity interest in
China Huishan Dairy 中国辉山乳业 (06863 HK)
approximately RMB700 million to Huishan for purchasing its production plant in China. Huishan will supply raw milk to the JV
the Company. Other major pre-IPO investors include Chow Tai Fook & Crown Castle (collectively holds 9.0% equity interest),
Hero Beteiligungen AG (held 3.6% equity interest), Nantong Zongyi (holds 2.0% equity interest), Investec (holds 2.0% equity
interest) and An Yu (held 2.0% equity interest). Except for Hero, these pre-IPO investors’ subscription price per share ranges
from HK$0.73 to HK$0.78. Hero and An Yu disposed all their shareholdings in the Company in Apr. 2014. On the other hand,
Norges Bank, Yili and COFCO (Beijing) Agricultural Industrial Equity Investment Fund are Huishan’s cornerstone investors,
with each holding 6.0%, 1.0% and 0.8% equity interests in the Company, respectively. Norges Bank’s shareholdings in
Huishan had increased from 2.5% in Sept. 2013 to 6.0% in May. 2014. Excluding major shareholders, pre-IPO investors and
cornerstone investors, the public holds approximately 27.5% equity interest in Huishan.
Share Repurchase Plan of HK$780 Million. Huishan believes the current share price of the Company is significantly below
financed by its existing cash reserves. Huishan used HK$141 million for repurchasing 88 million of shares in Oct. and Dec.
2014, which represented 0.6% of total outstanding shares before cancellation of shares. We expect Huishan to continue
repurchasing shares as the Company’s management believes current share price is undervalued.
See the last page for disclaimer
Page 2 of 26
Company Report
its intrinsic valuation and thus, Huishan implemented a share repurchase plan to repurchase its shares an amount up to
HK$780 million in Oct. 2014, which also shows its confidence in future prospects of the Company. The repurchase will be
INDUSTRY ANALYSIS
using domestic consumption of dairy products provided by United States Department of Agriculture (USDA) divided by total
population estimated by World Bank. Estimated dairy products domestic consumption per capita in China in 2013 was only
26.6 kgs, which was much lower than that of Asian (Japan: 59.4 kgs; India: 107.4 kgs) and Western developed countries. With
increasing acceptance of Western lifestyle of Chinese people, we expect China’s dairy consumption per capita to pick up in
1 April 2015
Per Capita Consumption of Dairy Products in China is Lower than that of Other Major Countries. Figure-1 is computed
the future, which is supported by rapid urbanisation and rising health awareness. However, we do not observe a very strong
correlation between GDP and dairy products consumption. Figure-2 compares various countries’ dairy products consumption
per capita when GDP per capita reached approximately US$7,000. Comparing dairy products consumption per capita at that
time versus current consumption level, dairy products consumption per capita grew at a much slower pace than GDP per
capita. Specifically, GDP per capita in Japan was approximately US$7,450 in 1977/1978, while dairy products consumption
per capita already reached 51.8 kgs. GDP per capita in Japan grew by more than four times in the past 35 years but dairy
consumption per capita only increased by less than 15%.
Figure-1: GDP per Capita vs. Dairy Products Domestic
Figure-2: GDP per Capita (~US$7,000) vs. Dairy
kg
500
Products Domestic Consumption per Capita
Eurozone
kg
600
U.S. - 1974
India
U.S.
400
500
China
Brazil
300
Russia
400
300
Argentina
200
Ukraine
200
Mexico
100
Australia
0
0
20,000
40,000
60,000
US$
80,000
Canada
Japan
Source: USDA, World Bank, Eurostat, European Central Bank,
Guotai Junan International.
100
0
6,600
51.8
26.6
6,800
7,000
7,200
US$
7,600
7,400
China 2013
Brazil 2007
Russia 2006
Argentina
- 2006
Mexico 2003
Australia 1975
Canada 1974
Japan 1977/1978
Source: USDA, World Bank, Guotai Junan International.
Figure-3: GDP per Capita (China vs. India vs. Japan)
Figure-4: Dairy Products Domestic Consumption per
Capita (China vs. India vs. Japan)
US$
10,000
US$
50,000
kg
120
8,000
40,000
100
6,000
30,000
4,000
20,000
2,000
10,000
China Huishan Dairy 中国辉山乳业 (06863 HK)
Consumption per Capita in 2013
80
60
0
1973
1983
China - LHS
0
1993
2003
2013
India - LHS
Japan - RHS
20
0
1974
1984
China
1994
India
2004
2014
Japan
Source: World Bank, Guotai Junan International.
Company Report
Source: World Bank, Guotai Junan International.
40
See the last page for disclaimer
Page 3 of 26
Demand for High-End Liquid Milk Products to Grow Faster than Mass Market Liquid Milk Products. China’s liquid milk
market had a total retail sales value of RMB144.8 billion in 2013, and represented a CAGR of 11.1% during 2007-2013. Driven
awareness, consumer preferences and improved dairy production distribution, demand for liquid milk is expected to remain
high in the future. Total retail sales value of liquid milk market in China is expected to reach RMB238.4 billion, representing a
CAGR of 10.5% during 2013-2018. With expected increasing demand for high-end, high nutrition liquid milk products from
reputable brands with reliable milk sources, the market size of high-end liquid milk, which is defined as the products with a
1 April 2015
by rising urbanisation leading to expected increase in per capita consumption of dairy products, as well as growing health
retail price of over RMB12 per litre, is expected to report a CAGR of 20.8% during 2013-2018 (CAGR of 22.7% during
2007-2013), while mass market liquid milk market size is only expected to grow at a CAGR of 4.9% during 2013-2018 (CAGR
of 8.0% during 2007-2013).
Figure-5: Retail Sales Value of Liquid Milk
Figure-6: Retail Sales Value Growth of Liquid Milk
Market in China
Market in China
RMB bn
238
250
200
132
16
71
76
87
77
12
65
92
79
51
42
30%
89
74
61
21%
107
20%
13%
122 127 131
97 103 110 116
0%
0
2008
2007
2009
11% 11% 10% 10% 10%
9% 10%
8% 6%
10%
2011
2013
Mass Market Liquid Milk
2015F
2010
2012
2014F
2016F
Mass Market Liquid Milk
High-End Liquid Milk
Total
2017F
High-End Liquid Milk
Source: National Bureau of Statistics of China, Frost & Sullivan,
the Company, Shengmu.
Note: Numbers in red represent total retail sales value.
2018F
Source: National Bureau of Statistics of China, Frost & Sullivan,
the Company, Shengmu.
Note: Numbers in the figure represent total retail sales value growth.
Relaxation of One-Child Policy in China Drives IMF Demand. Relaxation of one-child policy is one of the major catalysts
helping IMF products in China to maintain rapid growth momentum in 2014-2017. China’s IMF retail sales value grew at a
CAGR of 17.6% during 2007-2012 and is expected to reach RMB142.3 billion in 2017, representing a CAGR of 17.4% during
2012-2017. In addition, foreign IMF brands were involved in food safety scandals in 2013 which gave domestic brands
another chance to promote their IMF products. According to a survey conducted by Frost & Sullivan, approximately 86%
respondents in China are willing to buy domestic IMF products that are made from self-owned raw milk supply.
Figure-7: Retail Sales Value of Infant Milk Formula
Figure-8: Retail Sales Value Growth of Infant Milk
Market in China
Formula Market in China
RMB bn
25%
150
22.2%
21.8%
19.8%
18.3%
20%
120
18.5%
15%
90
142
60
30
34
41
43
44
53
64
76
89
105
123
16.9%
17.4%
16.1%
10%
5%
4.4%
0
1.9%
0%
2007
2009
2011
2013F
2015F
Source: National Bureau of Statistics of China, Frost & Sullivan,
the Company.
See the last page for disclaimer
2017F
2008
2010
2012
2014F
2016F
Source: National Bureau of Statistics of China, Frost & Sullivan,
the Company.
Page 4 of 26
Company Report
50
121
94 100 29 35
18 21
145
160
196
177
China Huishan Dairy 中国辉山乳业 (06863 HK)
150
100
40%
216
Expectation on Further Milk Yield Improvement. Estimated milk yield is calculated using total raw milk production estimated
by Food and Agriculture Organization of the United Nations (FAO) divided by number of dairy cows projected by USDA. From
China was higher than that of India, Brazil and Russia, such figure was still lower than that of the U.S. In addition, large-scale
dairy farming companies’ milk yield such as CMD, Huishan, Shengmu and YST is not significantly lower than that of the
average of the U.S. We see high possibility that estimated milk yield in China to further improve in the future, driven by
increasing market share of large-scale dairy farming companies which have absolute quality and cost advantages over small
1 April 2015
Figure-10, the estimated milk yield of the U.S. was 9.84 kgs in 2012, while that of China was 4.72 kgs. Although milk yield in
dairy farmers.
Figure-9: Number of Dairy Cows
Figure-10: Estimated Milk Yield
k head
60,000
kg
12
50,000
10
40,000
8
30,000
6
20,000
4
10,000
2
0
1990
1995
China
2000
India
2005
U.S.
2010
2015
Brazil
0
1992
Russia
Source: USDA.
1997
China
2002
India
U.S.
2007
2012
Brazil
Russia
Source: FAO, USDA, Guotai Junan International.
protein content above 3.2%, fat content above 3.7%, bacterial content below 100k CFU/ml, and somatic cell count below 400k
CFU/ml. Due to increasing demand for high-end liquid milk products, CAGR of premium raw milk supply grew at a CAGR of
17.6% during 2007-2013. However, conventional raw milk supply dropped and total raw milk production was flat in 2013
versus that in 2007, at 35.3 million tonnes. As large-scale dairy farming companies are aggressively importing heifers and
calves from overseas, premium raw milk supply is expected to reach 36.1 million tonnes in 2018, representing a CAGR of
18.7% during 2013-2018. Total raw milk supply is expected to grow at a CAGR of 5.8% during 2013-2018 and reaches 46.7
million tonnes.
Figure-11: Raw Milk Production in China
Figure-12: Raw Milk Production Growth in China
mn tonnes
50%
50
40
35
2
36
2
35
2
36
3
37
37
3
4
30
20
34
34
33
33
33
33
35
37
39
5
5
6
31
41
7
44
9
47
China Huishan Dairy 中国辉山乳业 (06863 HK)
Raw Milk Supply is On the Rise Driven by Premium Raw Milk Supply. Premium raw milk is defined as raw milk with
40%
11
30%
20%
31
33
34
35
36
10%
1% -1% 2% 2% 2%
0%
10
6% 7% 7%
3% 5%
-6%
-10%
0
2008
2007
2009
2011
2013
Conventional Raw Milk
2015F
2017F
Premium Raw Milk
Source: National Bureau of Statistics of China, Frost & Sullivan,
the Company, Shengmu.
Note: Numbers in red represent total raw milk production growth.
Company Report
Source: National Bureau of Statistics of China, Frost & Sullivan,
the Company, Shengmu.
Note: Numbers in red represent total raw milk production.
2010
2012
2014F
2016F
2018F
YoY Growth - Conventional Raw Milk
YoY Growth - Premium Raw Milk
YoY Growth - Total Raw Milk
See the last page for disclaimer
Page 5 of 26
National Raw Milk Shortage to Persist and Such Gap to be Filled By Reconstituted Milk. Raw milk demand in China
grew at a CAGR of 4.3% during 2007-2013, while raw milk supply stayed flat in 2013 versus that in 2007. As such, the gap
beverages made from milk powder reported satisfactory growth during the period. CAGR of raw milk demand in China is
expected to be 7.1% during 2013-2018, while raw milk supply is expected to grow at a CAGR of 5.8% during the period. Frost
& Sullivan expects that the premium raw milk market in China continues to experience a shortage in supply and such gap is
expected to be widened to 22.4 million tonnes in 2018. However, the gap will continue to be filled by reconstituted milk. In
1 April 2015
was widened from 2.7 million tonnes in 2007 to 13.7 million tonnes in 2013. The gap was filled by reconstituted milk and milk
addition, low milk powder price favours dairy manufacturers to produce dairy products made from milk powder. Whole milk
powder price was only US$2,400/MT in Nov. 2014, the lowest quotation since 3Q09. Although whole milk powder price
rebounded to US$2,928/MT in Mar. 2015, the shortage in raw milk is expected to be much smaller than previously forecasted
if the PRC government does not introduce any policy related to reconstituted milk.
Figure-13: Raw Milk Demand and Supply in China
Figure-14: Whole Milk Powder Price
US$ / tonne
mn tonnes
6,000
80
60
40
20
38
39
41
47
45
43
49
59
55
52
69
64
5,000
4,000
3,000
35
36
35
36
37
37
35
37
39
41
44
47
2,000
1,000
0
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Source: Global Dairy Trade.
Estimated Raw Milk Demand in Northeastern China in 2013 was 1.5 Million Tonnes. According to Frost & Sullivan,
Huishan’s market share of liquid dairy products in terms of retail sales value in 2013 was 19.5%. Assuming the Company’s
market share of liquid dairy products in terms of sales volume is not significantly deviated from that in terms of sales value,
estimated total liquid dairy products sales volume in Northeastern China in 2013 (Huishan’s liquid dairy products sales volume
in FY14 divided by market share in 2013) was approximately 1.5 million tonnes. We expect a conversion ratio of raw milk to
liquid dairy products of 1:1 and thus, raw milk demand in Northeastern China in 2013 was at most 1.5 million tonnes
(assuming limited contribution from imported liquid dairy products and liquid dairy products sold in Northeastern China but
manufactured outside Northeastern China).
China Huishan Dairy 中国辉山乳业 (06863 HK)
Source: National Bureau of Statistics of China, Frost & Sullivan,
the Company, Shengmu.
Jan-12
Raw Milk Demand
0
Jul-11
2017F
Jan-11
2015F
Jul-10
Raw Milk Supply
2013
Jan-10
2011
Jul-09
2009
Jan-09
2007
Possible Pressure on Raw Milk Price in Northeastern China in the Near Future due to Abundant Supply. Huishan and
YuanShengTai Dairy (YST, 01431 HK) are listed dairy farming companies based in Northeastern China. YST is a leading dairy
farming company based in Heilongjiang and Jilin. On the other hand, China Shengmu (Shengmu, 01432 HK) is a leading dairy
farming company based in Inner Mongolia, which is very close to Northeastern region of China. In 2013, Huishan (FY14) and
YST produced a total of 666k tonnes of raw milk, which accounted for 45.2% of total raw milk demand in Northeastern China in
2013. Assuming demand for liquid dairy products in Northeastern China to grow by 10% per annum in 2014-2016 and taking
into account of both Huishan and YST estimated raw milk supply growth, Huishan and YST could account for more than 65%
of Northeastern China’s raw milk demand in 2016. Although we expect consumers in Northeastern China (or even the whole
China) to consume more fresh milk and yogurt, raw milk supply growth in Northeastern China is expected to surpass that of
Company Report
demand growth. Therefore, we expect raw milk price in Northeastern China to be under pressure in the near future.
See the last page for disclaimer
Page 6 of 26
FINANCIAL ANALYSIS
CAGR of Huishan’s Turnover (Excluding Inter-Segment Sales) was 111.3% during FY11-FY14. Huishan’s major
businesses include production and sales of raw milk, liquid milk products and milk powder products. The Company’s turnover
(excluding inter-segment sales) reached RMB3,530 million in FY14 (year end Mar.), and represented a CAGR of 111.3%
1 April 2015
Revenue Analysis
during FY11-FY14. Huishan uses a portion of raw milk to produce its liquid milk products, milk powder products and dairy
ingredients and such internal supply of raw milk is eliminated from consolidated results. In FY14, Huishan’s liquid milk
business’s turnover amounted to RMB2,288 million and accounted for 64.8% of the Company’s turnover (excluding
inter-segment sales). Taking into account of inter-segment sales, Huishan’s dairy farming business, liquid milk business and
milk powder business accounted for 48.8%, 46.1% and 5.1% of the Company’s turnover (including inter-segment sales) in
FY14, respectively. In 1HFY15, Huishan’s turnover (excluding inter-segment sales) went up by 30.0% YoY to RMB1,995
million, of which milk powder business’s contribution increased from 7.0% in 1HFY14 to 13.2% in 1HFY15, while revenue
contributed from liquid milk business in 1HFY15 was 59.0%, down 6.3 ppts YoY.
Figure-15: Huishan’s External Sales
Figure-16: Huishan’s External Sales
– Breakdown By Business (Amount)
– Breakdown By Business (%)
100%
4,000
3,530
80%
254
3,000
2,552
88
2,000
1,333
1,000
0
374
244
FY11
Dairy Farming
4%
2,288
564
681
989
FY12
FY13
FY14
Milk Powder
7%
7%
13%
67%
65%
65%
59%
27%
28%
28%
28%
FY13
FY14
1,995
1,534
108
1,002
672
3%
42%
60%
1,707
Liquid Milk
7%
31%
424
263
40%
65%
1,178
554
0%
FY11
1HFY14 1HFY15
Grain Processing
50%
20%
Dairy Farming
FY12
Liquid Milk
Milk Powder
1HFY141HFY15
Grain Processing
Source: the Company.
Note: Numbers in red represent total external sales.
Source: the Company.
Figure-17: Huishan’s Total Sales (Incl. Inter-Segment
Figure-18: Huishan’s Total Sales (Incl. Inter-Segment
Sales) – Breakdown By Business (Amount)
RMB mn
Sales) – Breakdown By Business (%)
100%
6,000
4,962
254
4,500
3,463
88
3,000
1,614
1,500
377
0
247
FY11
Dairy Farming
564
953
FY12
FY13
Liquid Milk
3%
5%
5%
9%
49%
46%
46%
41%
46%
49%
49%
49%
FY13
FY14
30%
35%
4%
60%
2,288
1,707
1,591
80%
6%
China Huishan Dairy 中国辉山乳业 (06863 HK)
RMB mn
2,421
2,179
108
1,002
1,069
FY14
Milk Powder
2,847
263
1,178
40%
65%
59%
20%
1,406
1HFY14 1HFY15
Grain Processing
FY11
Dairy Farming
FY12
Liquid Milk
Milk Powder
1HFY141HFY15
Grain Processing
Source: the Company.
Company Report
Source: the Company.
Note: Numbers in red represent total sales including inter-segment sales.
0%
See the last page for disclaimer
Page 7 of 26
Dairy Farming Business
20,000 mu YoY to over 140,000 mu in FY14. The Company harvested alfalfa 3 times in FY14 with a total production volume of
137,510 tonnes, up 21.2% YoY. Average production cost of alfalfa in 1HFY15 was US$108 per tonne, up from US$70 per
tonne in FY12-FY13 and US$92 per tonne in FY14 due to higher rent for the newly added plantation field. However, such cost
is still much lower than that of imported alfalfa (approximately US$400 per tonne in FY14 and 1HFY15). The majority of land
1 April 2015
Current Plantation Fields Satisfy 300,000 Heads of Dairy Cows’ Needs. Huishan’s alfalfa plantation fields increased by
leases are with fixed rents expiring between 2026 and 2028. Commencing from May 2013, Huishan also plants other feeds for
dairy cows including corn silage (60%-70% of total consumption of forage) in Liaoning on approximately 340,000 mu of land.
Total production volume of other feed crops was 361,758 tonnes in FY14 and is expected to reach 1,310,000 tonnes in FY15.
According to the management, current production volume of alfalfa and feed crops is able to satisfy 300,000 heads of dairy
cows’ needs. The Company is able to adjust the feed mix in order to lower feed cost per milk yield. In addition, Huishan also
hires Mexican agricultural specialists in order to improve alfalfa and corn silage output on the existing land. Therefore, the
Company may not secure additional plantation fields in Liaoning in FY15-FY17.
The Number of Milkable Cows is Expected to Account for Less than 45% of the Company’s Dairy Cows in FY15-FY17.
Huishan had 59 dairy farms in operation in Mar. 2014, up from 29 dairy farms in Mar. 2011. The Company’s total herd size of
dairy cows reached 144,191 heads, up 27.8% YoY and represented a CAGR of 37.4% during FY11-FY14. Among all the dairy
cows in Mar. 2014, number of milkable cows was 61,286 heads, up 22.8% YoY and accounted for 42.5% of total number of
dairy cows. In contrast to other dairy farming listed peers in Hong Kong, Huishan’s dairy cows comprise Holsteins and Jerseys.
Holsteins are larger in size and generate higher milk yield, which are most welcomed by dairy farming companies. On the
other hand, Jerseys are smaller and generate lower milk yield but Jerseys’ milk generally contains higher levels of protein and
Company intends to import a total of 60,000 heads of dairy cows in FY15 and FY16. We expect Huishan’s number of dairy
cows to reach 188,090 heads, 246,717 heads and 280,235 heads in FY15-FY17, respectively, representing a CAGR of 24.8%
during FY14-FY17. The number of milkable cows as a percentage of dairy cows is expected to stay below 45% in FY15-FY17
due to continuous import of heifers and calves. Such ratio is relatively low comparing to approximately 53%-58% of China
Modern Dairy (CMD, 01117 HK), YST and Shengmu in 2014.
Table-1: Major Dairy Farming Companies’ Latest Herd Size
CMD
(01117 HK)
No. of Dairy Cows (Heads)
Huishan
(06863 HK)
Shengmu
(01432 HK)
YST
(01431 HK)
93,929
97,082
48,220
18,618
Milkable Cows
107,578
65,312
55,032
26,005
Total
201,507
162,394
103,252
44,623
53.4%
40.2%
53.3%
58.3%
Calves & Heifers
Milkable Cows as a % of Dairy Cows
China Huishan Dairy 中国辉山乳业 (06863 HK)
fat. In Sept. 2014, Huishan had 63 dairy farms in operation and had 162,394 heads of dairy cows, up 12.6% HoH. The
Source: the Companies.
Comparable Milk Yield Versus Peers. Huishan’s number of milkable cows increased from 18,584 heads in FY11 to 61,286
heads in FY14, and represented a CAGR of 48.8% during FY11-FY14. Estimated milk yield, being sales volume divided by
average number of milkable cows, reached 8.6 tonnes, 8.7 tonnes, 8.7 tonnes and 8.8 tonnes in FY12-FY14 and 1HFY15,
respectively. Huishan’s estimated milk yield for the latest 12 months was comparable with that of its peers (CMD, YST and
Shengmu) in 2014. Total sales volume of raw milk, including both inter-segment sales (for production of liquid milk products
and milk powder products) and external sales (mainly Yili (600887 CH) and Mengniu (02319 HK)), amounted to 482,428
the latest 12 months was lower than that of CMD but was much higher than that of Shengmu and YST. Driven by strong
demand of the Company’s liquid milk products, inter-segment raw milk sales in terms of sales volume accounted for 59.3% of
total raw milk sales volume in FY14, up from 1.1% in FY11. Excluding inter-segment raw milk sales, external raw milk sales in
terms of sales volume in FY14 was 196,119 tonnes, up 29.5% YoY and represented a CAGR of 51.2% during FY11-FY14.
See the last page for disclaimer
Page 8 of 26
Company Report
tonnes in FY14, up 36.9% YoY and represented a CAGR of 103.3% during FY11-FY14. Huishan’s raw milk sales volume for
Figure-19: Major Dairy Manufacturers’ Raw Milk Sales
Figure-20: Major Dairy Manufacturers’ Milk Yield
tonnes
1,000,000
(Latest 12 Months)
tonnes
10
931,334
800,000
9.7
8.8
8.8
7.6
8
540,251
600,000
6
344,696
400,000
1 April 2015
Volume (Latest 12 Months)
4
230,121
200,000
2
0
0
CMD (01117 HK)
Shengmu (01432 HK)
Huishan (06863 HK)
YST (01431 HK)
Source: the Companies, Guotai Junan International.
Note: Internal sales were included.
CMD (01117 HK)
Shengmu (01432 HK)
Huishan (06863 HK)
YST (01431 HK)
Source: the Companies, Guotai Junan International.
Note: Estimated using total raw milk sales volume divided by average number
of milkable cows.
External Raw Milk Sales Volume Growth is Expected to Report a CAGR of 27.3% during FY14-FY17. Huishan’s number
of milkable cows in 1HFY15 amounted to 65,312 heads, up 6.6% HoH. We expect the Company’s number of milkable cows to
be 78,306 heads, 95,028 heads and 117,818 heads in FY15-FY17, respectively, representing a CAGR of 24.3% during
FY14-FY17. Estimated milk yield is expected to remain fairly stable in FY15-FY17 on possible change in feed mix affecting
feed cost and milk yield, and rising number of Jerseys (lower milk yield than Holsteins). However, such negative impacts are
expected to be offset by increasing proportion of cows reaching the third and the fourth lactation periods (higher raw milk
output than other lactation periods). Thus, we expect total raw milk sales volume (including inter-segment sales) to be 602,710
External raw milk sales in terms of sales volume is expected to reach 256,489 tonnes, 324,500 tonnes and 389,726 tonnes in
FY15-FY17, respectively, and representing a CAGR of 25.7% during FY14-FY17.
Dairy Farming Companies are Expected to Report Faster Revenue Growth than that of Dairy Manufacturers during
2014-2016. Major listed dairy farming companies in China include Huishan, CMD, Shengmu and YST. These 4 companies’
total external sales are expected to reach RMB12,562 million in 2014, up 42.0% YoY. According to our estimate and
Bloomberg consensus, the aforementioned companies’ total revenue (raw milk sales and liquid milk sales) is expected to
achieve a CAGR of 22.5% during 2014-2016. On the other hand, Mengniu, Yili and Bright Dairy (600597 CH) are major dairy
manufacturers listed in Hong Kong and China. These 3 companies’ total revenue (Yashili’s results were excluded from
Mengniu’s results) in 2014 are expected to increase by 15.2% YoY, to RMB121,987 million. According to our estimate and
Bloomberg consensus, the aforementioned companies’ sales in 2016 are expected to be RMB156,597 million, up 12.8% YoY
China Huishan Dairy 中国辉山乳业 (06863 HK)
tonnes, 752,139 tonnes and 928,209 tonnes in FY15-FY17, respectively, and represent a CAGR of 24.4% during FY14-FY17.
and represent a CAGR of 13.3% during 2014-2016. Dairy manufacturers’ sales growth is expected to be much slower than
that of dairy farming companies during 2014-2016. Although we still expect demand for premium raw milk from major dairy
manufacturers to stay high, there could be some pressure on raw milk price due to competition from imported UHT and rising
import of milk powder.
Raw Milk Price in Northeastern China is Expected to Fall in FY15-FY17. Huishan and other major dairy farming
companies’ raw milk ASPs were higher than that of national raw milk price as they provide premium raw milk which contains
higher protein and fat content but with lower bacterial limits and somatic cell count. Yili and Mengniu are Huishan’s major raw
milk customers but they are also the Company’s competitors in liquid milk market. Huishan is the market leader in fresh milk in
Northeastern China, while competition in UHT milk remains fierce. With expected changing consumption habit from UHT milk
to fresh milk in Northeastern China, raw milk demand growth from Yili and Mengniu may be weak if raw milk price in such
external raw milk average selling price (ASP) to fall by 4.5%, 4.5% and 2.0% YoY in FY15-FY17, respectively. Estimated raw
milk ASP for external sales are expected to be RMB4,815, RMB4,599 and RMB4,507 in FY15-FY17, respectively.
See the last page for disclaimer
Page 9 of 26
Company Report
region stays high as these dairy companies are able to manufacture UHT milk elsewhere. Therefore, we expect Huishan’s
Figure-22: National Raw Milk Price - Quarterly
RMB / kg
4.5
RMB / kg
4.5
4.0
National - LHS
30%
YoY Growth - RHS
20%
4.0
10%
3.5
3.5
3.0
3.0
2.5
2.5
-20%
2.0
2.0
-30%
1Q15
3Q14
1Q14
3Q13
1Q13
3Q12
1Q12
3Q11
1Q11
3Q10
1Q10
3Q09
-10%
1Q09
Jan-15
Jul-14
Jan-14
Jul-13
Source: Ministry of Agriculture of the PRC.
Source: Ministry of Agriculture of the PRC.
Figure-23: Huishan’ Raw Milk ASP
Figure-24: Major Dairy Farming Manufacturers’ Raw
Milk ASP vs. National Raw Milk Price
RMB / kg
6
Source: the Companies, Ministry of Agriculture of the PRC.
Figure-25: Major Dairy Farming Manufacturers’
Figure-26: Major Dairy Farming Manufacturers’
External Raw Milk Sales
Total External Sales
RMB mn
RMB mn
5,000
8,000
4,000
6,000
China Huishan Dairy 中国辉山乳业 (06863 HK)
Source: the Company, Ministry of Agriculture of the PRC.
3Q14
1Q14
3Q13
1Q13
3Q12
1Q12
3Q11
1Q11
1Q09
1Q15
3Q14
1Q14
3Q13
1Q13
2
3Q12
2
1Q12
3
3Q11
3
1Q11
4
3Q10
4
1Q10
5
3Q09
5
1Q09
National - LHS
Huishan - Raw Milk (External)
CMD - Raw Milk (External)
YST
Shengmu - Raw Milk (External)
Huishan - Raw Milk (External)
3Q09
National - LHS
3Q10
RMB / kg
6
1Q10
vs. National Raw Milk Price
1Q15
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
0%
1 April 2015
Figure-21: National Raw Milk Price - Weekly
3,000
4,000
2,000
2,000
1,000
0
2011
2012
2013
2014
Huishan (06863 HK)
CMD (01117 HK)
Shengmu (01432 HK)
YST (01431 HK)
2012
2013
Huishan (06863 HK)
Shengmu (01432 HK)
2014
2015F
2016F
CMD (01117 HK)
YST (01431 HK)
Source: the Companies, Guotai Junan International, Bloomberg.
Note: We compare Huishan’s FY13-FY17 results with peers’
2012-2016 results.
Company Report
Source: the Companies, Guotai Junan International.
Note: We compare Huishan’s FY12-FY15F results with peers’
2011-2014 results.
0
See the last page for disclaimer
Page 10 of 26
Figure-28: Major Dairy Manufacturers’ Total Sales
RMB mn
RMB mn
40,000
80,000
30,000
60,000
20,000
40,000
10,000
20,000
0
2011
Mengniu (02319 HK)
2012
2013
Yili (600887 CH)
1H14
Bright (600597 CH)
Source: the Companies.
1 April 2015
Figure-27: Major Dairy Manufacturers’ Liquid Milk Sales
0
2012
2013
Mengniu (02319 HK)
2014
2015F
Yili (600887 CH)
2016F
Bright (600597 CH)
Source: the Companies, Guotai Junan International, Bloomberg.
Note: Yashili’s (01230 HK) contribution is excluded from Mengniu’s sales.
We Expect CAGR of Huishan’s External Sales of Raw Milk to be 21.1% during FY14-FY17. Huishan’s external revenue
from dairy farming business was RMB989 million in FY14, up 45.3% YoY and represented a CAGR of 59.4% during
FY11-FY14. Including inter-segment sales, total revenue from dairy farming business reported a CAGR of 114.1% during
FY11-FY14, and reached RMB2,421 million in FY14. In 1HFY15, the Company’s external revenue from dairy farming business
grew by 30.6% YoY to RMB554 million, which was attributable to 25.5% sales volume growth and 4.0% ASP growth. Driven by
increased number of milkable cows but partially offset by a slight decrease in ASP, we expect the Company’s external revenue
from dairy farming business to be RMB1,235 million, RMB1,492 million and RMB1,756 million in FY15-FY17, respectively, and
Table-2: Huishan’s Dairy Farming Business Breakdown
FY11
FY12
FY13
FY14
FY15F
FY16F
FY17F
No. of Dairy Cows (heads)
Calves & Heifers
36,968
59,033
62,962
82,905
109,784
151,689
162,417
Milkable Cows
18,584
31,221
49,889
61,286
78,306
95,028
117,818
Total
55,552
90,254
112,851
144,191
188,090
246,717
280,235
YoY Growth - Total
n.a.
62.5%
25.0%
27.8%
30.4%
31.2%
13.6%
Estimated Milk Yield (tonnes)
n.a.
8.6
8.7
8.7
8.6
8.7
8.7
56,776
151,083
151,431
196,119
256,489
324,500
389,726
Sales Volume (tonnes)
External
Internal
605
62,837
200,980
286,309
346,221
427,639
538,482
57,381
213,920
352,411
482,428
602,710
752,139
928,209
n.a.
166.1%
0.2%
29.5%
30.8%
26.5%
20.1%
External
4,298
4,448
4,495
5,042
4,815
4,599
4,507
Internal
4,255
4,467
4,530
5,001
4,801
4,584
4,493
Consolidated
4,298
4,453
4,515
5,017
4,807
4,591
4,499
n.a.
3.5%
1.1%
12.2%
-4.5%
-4.5%
-2.0%
244
672
681
989
1,235
1,492
1,756
3
281
910
1,432
1,662
1,961
2,419
Total
YoY Growth - External
China Huishan Dairy 中国辉山乳业 (06863 HK)
representing a CAGR of 21.1% during FY14-FY17.
ASP (RMB / tonne)
YoY Growth - External
External
Internal
Total
247
953
1,591
2,421
2,897
3,453
4,176
YoY Growth - External
n.a.
175.4%
1.3%
45.3%
24.9%
20.8%
17.7%
Source: the Company, Guotai Junan International.
See the last page for disclaimer
Page 11 of 26
Company Report
Revenue (RMB mn)
Liquid Milk Business
milk beverages, yogurt and fresh milk to consumers via third-party distributors, modern channels (supermarkets, convenience
stores and department stores) and specialty channels (home delivery, e-commerce, club memberships and etc.). In FY13,
distributors, modern channels and specialty channels accounted for 67.6%, 29.2% and 3.2% of the Company’s total liquid
business sales, respectively. On the other hand, yogurt, UHT milk, fresh milk and milk beverages (in terms of sales value)
1 April 2015
Intensifying Competition of UHT Products but Rising Contribution from Fresh Milk Products. Huishan sells UHT milk,
accounted for 34.3%, 33.3%, 32.3% and 0.1% of the Company’s total sales of liquid milk business in 1HFY15, versus 41.2%,
16.1%, 41.9% and 0.8% in 1HFY14, respectively. According to Frost & Sullivan, Huishan’s market share in liquid dairy
products in terms of sales value in Northeastern China was 19.5% in 2013. Competition in UHT milk and milk beverages
remains fierce as brand recognition of Yili and Mengniu is higher and pricing of imported UHT milk is comparable with those of
the Company and its peers’ high-end products. However, we expect consumer taste is shifting towards fresh milk and Huishan
is a leading player in providing fresh milk in Northeastern China. Therefore, we expect contribution of fresh milk products of
Huishan to rise but UHT products’ sales growth could slow. However, the Company is expanding its distribution network to
districts outside Northeastern China, which helps UHT products’ sales to keep growing in FY16-FY17.
CAGR of Liquid Milk Business’s Sales is Expected to be 8.9% during FY14-FY17. Total sales volume of Huishan’s liquid
milk products reached 287,528 tonnes, representing a CAGR of 468.7% during FY11-FY14. Consolidated ASP of Huishan’s
liquid milk products in 1HFY15 was RMB8,500 per tonne, up 17.7% YoY, but was still lower than that of CMD and Shengmu as
Huishan is still selling some low-to-mid-end liquid milk products. Huishan’s total sales of liquid milk business was RMB2,288
million in FY14, up 34.0% YoY and represented a CAGR of 429.8% during FY11-FY14. Thanks to growing fresh milk sales and
17.7% consolidated ASP improvement but partially offset by weak UHT sales, Huishan’s revenue from liquid milk business
China and penetration into new markets selling UHT products, we expect Huishan’s sales volume of liquid milk to achieve a
CAGR of 8.6% during FY14-FY17. Huishan’s liquid milk business sales are expected to reach RMB2,414 million, RMB2,670
million and RMB2,955 million in FY15-FY17, and represent a CAGR of 8.9% during FY14-FY17.
Table-3: Major Dairy Farming Companies’ Liquid Milk Business Breakdown (Latest 12 Months)
Huishan (06863 HK)
CMD (01117 HK)
Shengmu (01432 HK)
Sales Volume (tonnes)
287,324
87,096
51,248
ASP (RMB / tonne)
8,574
9,561
14,426
Revenue (RMB mn)
2,463
833
739
Source: the Companies.
Table-4: Huishan’s Liquid Milk Business Breakdown
FY11
FY12
Sales Volume (tonnes)
YoY Growth
ASP (RMB / tonne)
YoY Growth
FY13
FY14
FY15F
FY16F
FY17F
1,563
85,107
246,162
287,528
286,770
326,562
368,082
n.a.
5345.1%
189.2%
16.8%
-0.3%
13.9%
12.7%
9,845
6,631
6,935
7,957
8,419
8,175
8,029
n.a.
-32.7%
4.6%
14.7%
5.8%
-2.9%
-1.8%
0
17
178
503
830
1,012
1,208
14
292
786
938
784
839
904
2
255
743
846
800
819
843
China Huishan Dairy 中国辉山乳业 (06863 HK)
increased by 17.5% YoY in 1HFY15 to RMB1,178 million. With expectation of growing fresh milk consumption in Northeastern
Fresh Milk
UHT and Milk Beverages
Yogurt
Total
YoY Growth - Total
15
564
1,707
2,288
2,414
2,670
2,955
n.a.
3567.2%
202.5%
34.0%
5.5%
10.6%
10.7%
Source: the Company, Guotai Junan International.
See the last page for disclaimer
Page 12 of 26
Company Report
Revenue (RMB mn)
Milk Powder Business
powder products in Jan. 2013. The Company offers IMF to end-consumers (B2C) and also supplies IMF powder, non-dairy
creamers and D90 whey powder to industrial customers (B2B). Huishan’s infant milk formula brands include Huishan (辉山),
Huishan Gold Label (辉山金装), Huishan Grace Star (辉山星恩) and Huishan Gold Queen (辉山金皇后). The suggested retail
price per 100 grams of Huishan, Huishan Gold Label, Huishan Grace Star and Huishan Gold Queen IMF products in Mar.
1 April 2015
Comprehensive Product Offerings Targeting Different Customer Groups. Huishan commenced production of milk
2013 were roughly RMB17-RMB22, RMB25-RMB33, RMB11-RMB13 and RMB43-RMB48, respectively. Huishan sold 1,478
tonnes of IMF in 1HFY15 and Frost & Sullivan estimates that the Company’s market share in IMF products in terms of retail
sales value in Liaoning was 9% in 2013. Huishan’s total sales volume of milk powder business were 4,875 tonnes and 9,476
tonnes in FY14 and 1HFY15, respectively. In addition, Huishan will set up a 50-50 JV with FrieslandCampina to produce IMF
products under an existing brand of the FrieslandCampina Group.
Expect Milk Powder Business to Maintain Fast Growth Momentum in FY15-FY17. Huishan’s milk powder sales in FY14
were less than one-tenth of that of major listed IMF manufacturers in China (Beingmate (002570 CH), Biostime (01112 HK)
and Yashili (01230 HK)) in 2014. Leveraging on strong brand recognition of Huishan’s liquid milk products and Mr. Mark
Anthony Wilson’s extensive experience in helping Huishan’s IMF products to gain success in Eastern China, we believe that
the Company’s B2C milk powder business has huge growth potential. In addition, leveraging on Huishan’s close relationship
with FrieslandCampina, B2B sales of milk powder products are also expected to achieve strong growth by securing more
orders from FrieslandCampina as well as orders from large domestic and/or foreign dairy companies. We expect Huishan’s
sales volume of milk powder to achieve a CAGR of 97.2% during FY14-FY17. The Company’s revenue generated from milk
powder business is expected to be RMB591 million, RMB1,085 million and RMB1,953 million in FY15-FY17, respectively, and
represent a CAGR of 97.5% during FY14-FY17. Internal consumption of raw milk is expected to grow on rising demand for
Figure-29: Major Infant Formula Manufacturers’
China Huishan Dairy 中国辉山乳业 (06863 HK)
milk powder products, hence putting less pressure on abundant raw milk output in FY15-FY17.
Figure-30: Major Infant Formula Manufacturers’
Infant Formula Sales
Total Sales
RMB mn
RMB mn
6,000
10,000
8,000
4,000
6,000
4,000
2,000
2,000
0
0
2012
2013
1H14
Yili (600887 CH)
Beingmate (002570 CH)
Biostime (01112 HK)
Yashili (01230 HK)
Source: the Companies.
YoY Growth
ASP (RMB / tonne)
YoY Growth
Revenue (RMB mn)
YoY Growth
2013
2014
2015F
2016F
Biostime (01112 HK)
Source: the Companies, Bloomberg.
Table-5: Huishan’s Milk Powder Business Breakdown
FY11
FY12
Sales Volume (tonnes)
2012
Beingmate (002570 CH)
Yashili (01230 HK)
FY13
FY14
FY15F
FY16F
FY17F
0
0
759
4,875
19,106
26,644
37,410
n.a.
n.a.
n.a.
542.3%
291.9%
39.5%
40.4%
0
0
116,011
52,055
30,928
40,727
52,218
n.a.
n.a.
n.a.
-55.1%
-40.6%
31.7%
28.2%
0
0
88
254
591
1,085
1,953
n.a.
n.a.
n.a.
188.2%
132.8%
83.6%
80.0%
Source: the Company, Guotai Junan International.
See the last page for disclaimer
Page 13 of 26
Company Report
2011
Consolidated
business is expected to slow during FY14-FY17 (12.3%) comparing to that in FY11-FY14 (429.8%), rising raw milk output on
increased number of milkable cows as well as fast-growing milk powder business helps alleviate such negative impact. We
expect the Company’s total external sales to be RMB4,240 million, RMB5,247 million and RMB6,665 million in FY15-FY17, up
20.1%, 23.7% and 27.0% YoY, respectively, and represent a CAGR of 23.6% during FY14-FY17. In terms of external sales,
1 April 2015
We Expect CAGR of Total External Sales to be 23.6% during FY14-FY17. Although CAGR of sales of Huishan’s liquid milk
liquid milk business’s contribution is expected to fall from 64.8% in FY14 to 44.3% in FY17, while milk powder business is
expected to account for 29.3% of Huishan’s total external sales in FY17, up from 7.2% in FY14.
Figure-31: Huishan’s External Sales Volume
Figure-32: Huishan’s Average Selling Price
– Breakdown By Business (Amount)
– Breakdown By Business
k tonnes
1,000
795
800
678
562
200
398
1
246
489
5
27
19
37
368
327
120,000
8,000
100,000
7,000
80,000
6,000
60,000
5,000
40,000
287
288
151
196
256
FY13
FY14
FY15F
324
390
4,000
20,000
FY13
0
Dairy Farming
FY16F
Liquid Milk
FY17F
FY14
FY15F
FY16F
Dairy Farming - LHS
Milk Powder - RHS
Milk Powder
FY17F
Liquid Milk - LHS
Source: the Company, Guotai Junan International.
Note: Numbers in red represent total external sales volume.
Source: the Company, Guotai Junan International.
Figure-33: Huishan’s External Sales
Figure-34: Huishan’s External Sales Growth
– Breakdown By Business
– Breakdown By Business
RMB mn
8,000
250%
6,000
5,247
4,240
3,530
4,000
2,000
0
6,665
200%
1,953
150%
1,085
91.5%
100%
591
254
2,955
2,552
88
1,707
2,288
681
989
1,235
1,492
1,756
FY13
FY14
FY15F
FY16F
FY17F
Dairy Farming
Liquid Milk
2,414
2,670
Milk Powder
Source: the Company, Guotai Junan International.
Note: Numbers in red represent total external sales.
38.3%
50%
23.7%
27.0%
FY15F
FY16F
FY17F
0%
FY13
Grain Processing
20.1%
China Huishan Dairy 中国辉山乳业 (06863 HK)
600
400
RMB / tonne
9,000
FY14
Dairy Farming
Milk Powder
Liquid Milk
Total
Source: the Company, Guotai Junan International.
Note: Numbers in the figure represent total external sales growth.
Gross Margin Analysis
Comparable Cost Structure of Dairy Farming Business. Concentrated feeds are feeds for dairy cows that are made by
blending various crops, including corn, soybean meals and cottonseed meals. For Huishan’s dairy farming business, feed
costs accounted for 77.7% of the Company’s dairy farming COGS in 1HFY15. Huishan enjoys lower feed cost than that of its
was US$108 per tonne, which was substantially lower than the average CIF (cost, insurance and freight) price of imported
alfalfa of close to US$400 per tonne. However, the cost structure of Huishan and its peers are relatively similar that feeds
accounted for roughly 80% of COGS of dairy farming business. On the other hand, Huishan’s cost of raw milk accounted for
73.0% of the Company’s COGS of liquid milk business in FY14. Such ratio was much higher than that of Shengmu (2013:
See the last page for disclaimer
Page 14 of 26
Company Report
peers by engaging in alfalfa and corn silage plantation. For example, the Company’s cost of production for alfalfa in 1HFY15
57.7%) and Mengniu (2013: ~44%). Mengniu also sells milk beverages made from milk powder so that raw milk accounted for
a lower proportion to its COGS, while Shengmu only focuses on selling high-end organic milk products with packaging costs
Figure-35: Huishan’s Dairy Farming COGS
Figure-36: Huishan’s Liquid Milk COGS
Breakdown in 1HFY15
Breakdown in FY14
Feed
Salary, Welfare &
Social Insurance
Depreciation
Raw Milk
3.0%
2.0%
3.0%
Raw Materials
19.0%
Utilities & Other
Processing Costs
Veterinary Cost
Labour Costs
Utility
73.0%
77.7%
Other Costs
Depreciation
Source: the Company.
Source: the Company.
Figure-37: China Modern Dairy’s Dairy Farming
Figure-38: China Modern Dairy’s Liquid Milk
COGS Breakdown in 2014
COGS Breakdown in 2014
Feeds
8.5%
5.8%
2.4%
5.1%
Labour
78.2%
Raw Materials
1.9%
3.6% 3.0%
2.9%
Labour Cost
Utilities
Depreciation
Depreciation
Utilities
Other Costs of
Farms
Other
Processing
Costs
88.7%
Source: CMD’s 2014 Annual Report.
Source: CMD’s 2014 Annual Report.
Figure-39: Shengmu’s Dairy Farming COGS
Figure-40: Shengmu’s Liquid Milk COGS
Breakdown in 2013
China Huishan Dairy 中国辉山乳业 (06863 HK)
6.0%
3.5%
5.4%
2.6%
4.6%
1 April 2015
accounting for a higher proportion of its COGS than that of other dairy manufacturers.
Breakdown in 2013
Raw Milk
9.3%
13.1%
Feeds
1.9%
8.4%
Packages
Salary, Welfare &
Social Insurance
31.1%
Others
57.7%
Salary, Welfare &
Social Insurance
78.4%
Source: Shengmu’s Prospectus.
See the last page for disclaimer
Company Report
Others
Source: Shengmu’s Prospectus.
Page 15 of 26
Figure-41: YST’s COGS Breakdown in 2014
Feed
5.2%
3.4%
3.6%
6.1%
1 April 2015
Salary, Welfare &
Social Insurance
Depreciation
4.8%
Veterinary Cost
Utility
76.9%
Other Costs
Source: YST’s 2014 Annual Report.
Subject to Less Raw Milk Price Risk than Peers Amid Weakening Raw Milk Price Expectation. Huishan’s cost of
production of alfalfa is substantially lower than imported alfalfa price. The Company also sources corn and soybean meal from
domestic suppliers and their prices remained relatively stable in 2014. In addition, Huishan’s internal raw milk consumption
accounted for 60.3% of its raw milk output in 1HFY15, which was substantially higher than other dairy farming peers
(Shengmu: 21.1% in 2014; CMD: 10.1% in 2014). Huishan is expected to subject to less raw milk price risk than its peers,
which means the Company shares less profit when raw milk price increases but the Company’s profitability will remain
relatively stable when raw milk price drops.
US$ / ton
420
Imported Alfalfa Price - LHS
YoY Growth - RHS
YTD Growth - RHS
15%
Jan-15
Nov-14
Jul-14
-10%
Sep-14
320
May-14
-5%
Jan-14
340
Mar-14
0%
Sep-13
360
Nov-13
5%
Jul-13
380
Mar-13
10%
May-13
400
Jan-13
China Huishan Dairy 中国辉山乳业 (06863 HK)
Figure-42: Imported Alfalfa Price
Source: China Customs.
RMB / kg
2.8
Figure-44: China Soybean Meal Price
China Corn Price - LHS
YoY Growth - RHS
YTD Growth - RHS
15%
RMB / kg
5.0
China Soybean Meal Price - LHS
YoY Growth - RHS
YTD Growth - RHS
30%
Source: Ministry of Agriculture of the PRC.
See the last page for disclaimer
Jan-15
Mar-15
Sep-14
Nov-14
Jul-14
Mar-14
May-14
Jan-14
Nov-13
-20%
Sep-13
2.5
Jul-13
-10%
May-13
2.3
Mar-13
-10%
Jan-13
3.0
Jan-15
-5%
Mar-15
2.4
Nov-14
0%
Sep-14
3.5
Jul-14
0%
Mar-14
2.5
May-14
10%
Jan-14
4.0
Nov-13
5%
Jul-13
2.6
Sep-13
20%
Mar-13
4.5
May-13
10%
Jan-13
2.7
Source: Ministry of Agriculture of the PRC.
Page 16 of 26
Company Report
Figure-43: China Corn Price
Huishan’s Dairy Farming Business Enjoyed Higher Gross Margin than Peers. Huishan’s gross margin (after elimination
of internal supplies of raw milk and including fair value gain on unused alfalfa grass and other feed crops) of dairy farming
gross margin than that of CMD, YST and Shengmu as Huishan recorded fair value gain on alfalfa grass and other feed crops.
Excluding such fair value gain, Huishan’s gross margin of dairy farming business was 48.5%, 58.7%, 62.0% and 57.3% in
FY12-FY14 and 1HFY15, respectively. Huishan’s gross margin of liquid milk business (before elimination of internal supplies
of raw milk) arrived at 15.1%, 22.1%, 28.5% and 29.6% in FY12-FY14 and 1HFY15, respectively. Huishan’s liquid milk
1 April 2015
business in FY12-FY14 and 1HFY15 was 48.5%, 61.4%, 68.9% and 125.9%, respectively. The Company reported higher
business enjoyed similar gross margin with Shengmu but outperformed that of CMD.
Figure-45: Major Dairy Farming Manufacturers’
Figure-46: Major Dairy Farming Manufacturers’
Dairy Farming Business Gross Margin
Liquid Milk Business Gross Margin
70%
40%
60%
30%
50%
20%
40%
10%
30%
0%
2011
2012
2013
2014
2011
2012
2013
Huishan (06863 HK)
CMD (01117 HK)
Huishan (06863 HK)
Shengmu (01432 HK)
YST (01431 HK)
Shengmu (01432 HK)
Source: the Companies, Guotai Junan International.
Note-1: After elimination of internal supplies of raw milk but exclude fair value
gain on agricultural products.
Note-2: We compare Huishan’s FY12-FY15F results with peers’
2011-2014 results.
2014
CMD (01117 HK)
Source: the Companies, Guotai Junan International.
Note-1: Before elimination of internal supplies of raw milk.
Note-2: We compare Huishan’s FY12-FY15F results with peers’
2011-2014 results.
CAGR of Gross Profit is Expected to be 23.6% during FY14-FY17. Huishan’s consolidated gross profit reached RMB2,273
million and RMB1,518 million in FY14 and 1HFY15, up 62.8% and 54.0% YoY, respectively, and represented a CAGR of
166.7% during FY11-FY14. Such growth is supported by strong sales volume growth of raw milk and liquid milk products as
well as ASP increment for both raw milk and liquid milk products. Due to expected fair value gain on agricultural products with
more leased land, we expect gross margin of dairy farming business in FY15-FY17 to be higher than that in FY12-FY14,
despite raw milk price decline. We expect Huishan’s consolidated gross profit to be RMB2,782 million, RMB3,366 million and
RMB4,289 million in FY15-FY17, up 22.4%, 21.0% and 27.4% YoY, respectively, and represent a CAGR of 23.6% during
FY14-FY17. Consolidated gross margin is expected to arrive at 65.6%, 64.2% and 64.3% in FY15-FY17, respectively.
Figure-47: Huishan’s Gross Profit
Figure-48: Huishan’s Gross Margin
– Breakdown By Business (Amount)
RMB mn
5,000
100%
1,396
53
922
2,273
92
1,499
2,782
216
1,569
422
60%
1,906
1,729
40%
997
1,566
682
1,215
418
FY13
FY14
FY15F
FY16F
FY17F
Dairy Farming
80%
Milk Powder
Grain Processing
Source: the Company, Guotai Junan International.
Note-1: Numbers in red represent total gross profit.
Note-2: Gross profit includes fair value gain on agricultural products.
See the last page for disclaimer
65.6%
64.2%
64.3%
FY14
FY15F
FY16F
FY17F
20%
FY13
Liquid Milk
64.4%
54.7%
Dairy Farming
Milk Powder
Liquid Milk
Consolidated
Source: the Company, Guotai Junan International.
Note: Numbers in the figure represent consolidated gross margin.
Page 17 of 26
Company Report
0
817
3,366
3,000
1,000
– Breakdown By Business
4,289
4,000
2,000
China Huishan Dairy 中国辉山乳业 (06863 HK)
20%
Adjusted EBITDA and Adjusted EBT Analysis
consist of staff costs, transportation costs, travel and promotion expenses, while the Company’s core administrative expenses
(excluding share option and IPO expenses) consist primarily of staff costs, depreciation and amortisation, consultancy
expense, taxation and surcharges. Huishan relies more on liquid milk business than that of its peers and the Company’s
distribution costs as a percentage of revenue was higher than that of its peers. On the other hand, Huishan’s core
1 April 2015
Huishan’s Operating Expenses to Revenue Ratio was Higher than that of Peers. Huishan’s distribution costs primarily
administrative expenses as a percentage of revenue was/is expected to be also higher than that of its peers in 2013 and 2014,
which was partially attributable to Huishan’s expansion of liquid milk and milk powder businesses.
Figure-49: Major Dairy Farming Companies’ Distribution
Figure-50: Major Dairy Farming Companies’ Core Admin
Costs as a Percentage of Revenue
Expenses as a Percentage of Revenue
15%
10%
12%
8%
9%
6%
6%
4%
3%
2%
0%
2011
2012
2013
2014
2011
2012
2013
2014
Huishan (06863 HK)
CMD (01117 HK)
Huishan (06863 HK)
CMD (01117 HK)
Shengmu (01432 HK)
YST (01431 HK)
Shengmu (01432 HK)
YST (01431 HK)
Source: the Companies, Guotai Junan International.
Note: We compare Huishan’s FY12-FY15F results with peers’
2011-2014 results.
Source: the Companies, Guotai Junan International.
Note: We compare Huishan’s FY12-FY15F results with peers’
2011-2014 results.
Industry’s Adjusted EBITDA Margin was on a Rising Trend in 2013 and 2014. Adjusted EBITDA excludes fair value
gain/loss on biological assets and agricultural products as well as non-core items. Huishan’s adjusted EBITDA in FY12-FY14
and 1HFY15 was RMB546 million, RMB1,290 million, RMB1,849 million and RMB969 million, respectively, and represented a
CAGR of 154.8% during FY11-FY14. The Company’s adjusted EBITDA margin was 41.0%, 50.5%, 52.4% and 48.6% in
FY12-FY14 and 1HFY15, respectively. Huishan enjoyed higher adjusted EBITDA margin than its peers in 2011-2013 due to
lower feed costs of alfalfa and corn silage plantation as well as higher proportion of revenue generated from higher-margin
liquid milk business. However, the Company’s operating costs increased at a much faster pace than that of revenue growth
and thus, we expect adjusted EBITDA margin in FY15 to be lower than that in FY14. On the other hand, driven by rising raw
milk price, major dairy farming companies’ adjusted EBITDA margin improved/remained stable YoY in 2014.
Figure-51: Major Dairy Farming Companies’
China Huishan Dairy 中国辉山乳业 (06863 HK)
0%
Figure-52: Major Dairy Farming Companies’
Adjusted EBITDA
Adjusted EBITDA Margin
RMB mn
60%
2,500
50%
2,000
1,500
40%
1,000
30%
500
20%
2011
2012
2013
2014
2011
2012
2013
2014
Huishan (06863 HK)
CMD (01117 HK)
Huishan (06863 HK)
CMD (01117 HK)
Shengmu (01432 HK)
YST (01431 HK)
Shengmu (01432 HK)
YST (01431 HK)
Source: the Companies, Guotai Junan International.
Note: We compare Huishan’s FY12-FY15F results with peers’
2011-2014 results.
See the last page for disclaimer
Source: the Companies, Guotai Junan International.
Note: We compare Huishan’s FY12-FY15F results with peers’
2011-2014 results.
Page 18 of 26
Company Report
0
We Expect CAGR of Adjusted EBITDA to be 18.7% during FY14-FY17. By business breakdown, dairy farming business
(including profit from selling raw milk to liquid milk business) accounted for 80.2% and 81.7% of Huishan’s adjusted EBITDA in
the same corresponding period, respectively. Milk powder business recorded tiny profit in FY13 but was loss-making in FY14.
We expect the Company’s adjusted EBITDA in FY15-FY17 to reach RMB2,060 million, RMB2,468 million and RMB3,094
million, up 11.4%, 19.9% and 25.3% YoY, respectively. CAGR of Huishan’s adjusted EBITDA is expected to be 18.7% during
FY14-FY17, of which CAGR of adjusted EBITDA of dairy farming and liquid milk businesses are expected to arrive at 17.5%
1 April 2015
FY14 and 1HFY15, respectively, while liquid milk business contributed 22.2% and 18.0% to Huishan’s adjusted EBITDA for
and 8.5% during FY14-FY17, respectively. In addition, we also expect milk powder business to begin turning profitable in FY16
on increasing recognition of the Company’s IMF products. Huishan’s adjusted EBITDA margin is expected to be 48.6%, 47.0%
and 46.4% in FY15-FY17, respectively. The fall in adjusted EBITDA margin in FY15-FY17 is mainly attributable to expected
fall in raw milk price.
Figure-53: Huishan’s Adjusted EBITDA
Figure-54: Huishan’s Adjusted EBITDA Margin
– Breakdown By Business (Amount)
– Breakdown By Business
RMB mn
4,000
80%
3,000
2,000
1,000
2,468
1,849
1,290
410
268
973
2,060
3,094
60%
524
40%
444
379
52.4%
48.6%
47.0%
46.4%
FY13
FY14
FY15F
FY16F
FY17F
20%
1,483
1,697
1,998
FY14
FY15F
FY16F
2,403
0%
0
FY13
50.5%
FY17F
-20%
Dairy Farming
Liquid Milk
Milk Powder
Dairy Farming
Milk Powder
Grain Processing
Source: the Company, Guotai Junan International.
Note: Numbers in red represent adjusted EBITDA.
Liquid Milk
Consolidated
Source: the Company, Guotai Junan International.
Note: Numbers in the figure represent consolidated adjusted EBITDA margin.
CAGR of Adjusted EBT is expected to be 12.9% during FY14-FY17. Huishan’s adjusted EBT was RMB409 million,
RMB1,091 million and RMB1,473 million in FY12-FY14, respectively, and represented a CAGR of 255.9% during FY11-FY14.
Due to aggressive CAPEX, Huishan’s net interest expense, depreciation and amortisation are expected to grow at a faster
pace than the Company’s adjusted EBITDA in FY15-FY17. We expect Huishan’s adjusted EBT in FY15-FY17 to arrive at
RMB1,481 million, RMB1,691 million and RMB2,122 million, up 0.5%, 14.2% and 25.4% YoY, respectively, and represent a
CAGR of 12.9% during FY14-FY17. The Company’s adjusted EBT of milk powder business is still expected to be loss-making
in FY15-FY17 on small business size. We expect Huishan’s adjusted EBT margin to fall from 41.7% in FY14 to 34.9%, 32.2%
China Huishan Dairy 中国辉山乳业 (06863 HK)
(1,000)
and 31.8% in FY15-FY17, respectively, on weak raw milk price assumption.
Figure-55: Huishan’s Adjusted EBT
Figure-56: Huishan’s Adjusted EBT Margin
– Breakdown By Business (Amount)
– Breakdown By Business
RMB mn
3,000
60%
2,122
2,000
1,473
1,091
1,000
1,481
30%
42.7%
41.7%
493
424
34.9%
32.2%
31.8%
FY15F
FY16F
FY17F
0%
380
374
1,227
1,227
1,380
1,631
FY14
FY15F
FY16F
FY17F
253
815
1,691
-30%
0
-60%
FY13
FY14
(1,000)
Dairy Farming
Liquid Milk
Milk Powder
Source: the Company, Guotai Junan International.
Note: Numbers in red represent adjusted EBT.
See the last page for disclaimer
Grain Processing
Dairy Farming
Milk Powder
Liquid Milk
Consolidated
Source: the Company, Guotai Junan International.
Note: Numbers in the figure represent consolidated adjusted EBT margin.
Page 19 of 26
Company Report
FY13
Reported Net Profit and Adjusted Net Profit Analysis
RMB1,249 million and RMB789 million, up 32.1% and 53.0% YoY, respectively. The CAGR of the Company’s reported net
profit during FY11-FY14 was 63.0% but was much slower than that of adjusted EBITDA (154.8%) and EBT (255.9%) because
1) Huishan reported fair value of RMB295 mn on biological assets in FY11 but recorded fair value loss of RMB68 mn in FY14;
and 2) equity-settled share option expense of RMB117 mn and IPO expenses of RMB35 mn were recorded in FY14.
1 April 2015
CAGR of Reported Net Profit was 63.0% during FY11-FY14. Huishan’s reported net profit in FY14 and 1HFY15 was
Excluding these non-core items, Huishan’s adjusted net profit in FY12-FY14 and 1HFY15 was RMB386 million, RMB1,040
million, RMB1,470 million and RMB912 million, respectively.
We Expect CAGR of Adjusted EPS to be 13.7% during FY14-FY17. Driven by increasing raw milk output and growing milk
powder business but offset by weakening gross margin and fair value loss on biological assets, we expect Huishan’s reported
net profit to arrive at RMB1,322 million, RMB1,530 million and RMB1,930 million in FY15-FY17, and represent a CAGR of
15.6% during FY14-FY17. Reported EPS in FY15-FY17 is expected to arrive at RMB0.092, RMB0.107 and RMB0.135, down
4.6% in FY15 but up 16.0% and 26.5% in FY16-FY17, respectively. The Company’s adjusted net profit is expected to reach
RMB1,588 million, RMB1,896 million and RMB2,383 million in FY15-FY17, and represent a CAGR of 17.5% during
FY14-FY17. We expect Huishan’s adjusted EPS in FY15-FY17 to be RMB0.110, RMB0.132 and RMB0.166, respectively, and
represent a CAGR of 13.7% during FY14-FY17.
Figure-57: Huishan’s Reported Net Profit
Figure-58: Huishan’s Adjusted Net Profit
and Reported Net Margin
and Adjusted Net Margin
45%
1,930
2,000
40%
1,530
1,500
1,249
1,322
45%
1,896
2,000
1,470
40%
1,588
1,040
35%
35%
1,000
30%
500
0
25%
FY13
2,383
1,500
945
1,000
RMB mn
2,500
FY14
FY15F
Reported Net Profit - LHS
FY16F
30%
500
0
FY17F
25%
FY13
Reported Net Margin - RHS
Source: the Company, Guotai Junan International.
Note: Numbers in the figure represent reported net profit.
FY14
FY15F
Adjusted Net Profit - LHS
FY16F
FY17F
Adjusted Net Margin - RHS
Source: the Company, Guotai Junan International.
Note: Numbers in the figure represent adjusted net profit.
Comparable Earnings Growth with Peers. Reported net profit of CMD, Shengmu and YST are expected to deliver CAGR of
China Huishan Dairy 中国辉山乳业 (06863 HK)
RMB mn
2,500
14.3%, 33.8% and 7.9% during 2014-2016. The average growth is similar with that of Huishan (20.8%) during FY15-FY17.
Figure-59: Major Dairy Farming Companies’
Figure-60: Major Dairy Farming Companies’
Reported Net Profit
Reported Net Profit Growth
RMB mn
2,500
120%
100%
2,000
80%
1,500
60%
40%
1,000
0%
0
-20%
2012
2013
Huishan (06863 HK)
Shengmu (01432 HK)
2014
2015F
Source: the Companies, Guotai Junan International, Bloomberg.
Note: We compare Huishan’s FY13-FY17 results with peers’
2012-2016 results.
See the last page for disclaimer
2016F
CMD (01117 HK)
YST (01431 HK)
2012
2013
2014
2015F
2016F
Huishan (06863 HK)
CMD (01117 HK)
Shengmu (01432 HK)
YST (01431 HK)
Source: the Companies, Guotai Junan International, Bloomberg.
Note: We compare Huishan’s FY13-FY17 results with peers’
2012-2016 results.
Page 20 of 26
Company Report
20%
500
Capital Expenditure and Cash Flow
lease prepayments, and breeding costs of calves and heifers) of RMB1,744 million, RMB1,567 million and RMB5,509 million
in FY12-FY14, respectively. The Company intends to import at least 30,000 heads of heifers in FY15 and FY16, respectively.
In addition, Huishan will construct at least 30 dairy farms in Liaoning in FY15-FY17. On the other hand, Huishan co-operates
with Nantong Zongyi to expand the Company’s vertically-integrated dairy value chain to Jiangsu. Huishan and Zongyi hold
1 April 2015
Possible Free Cash Inflow in FY17. Huishan made capital expenditures (purchase of PP&E & biological assets, addition of
65% and 35% equity interests in newly set up subsidiaries and the project will require total funding of up to RMB2,500 million
in 2014-2018. We only expect this new business to contribute to Huishan commencing from FY18. Total CAPEX is expected to
reach RMB5,364 million, RMB4,593 million and RMB2,749 million in FY15-FY17, respectively. The fall in CAPEX in FY17 is
attributable to absence of addition of lease prepayments and we expect number of imported heifers to sharply fall YoY. With
respect to possible CAPEX savings in FY17, we expect Huishan to report free cash inflow in FY17.
Table-6: Huishan’s Capital Expenditure Plan and Free Cash Flow
RMB million
FY11
FY12
FY13
FY14
FY15F
FY16F
FY17F
Capital Expenditure
(1,934)
(1,744)
(1,567)
(5,509)
(5,364)
(4,593)
(2,749)
Free Cash Flow
(1,905)
(1,083)
(173)
(4,398)
(2,869)
(1,958)
550
Source: the Company, Guotai Junan International.
SENSITIVITY ANALYSIS
Less Subject to Raw Milk Price Fluctuation than Peers. Huishan is less subject to raw milk price fluctuation due to higher
21.1% in 2014) and liquid milk business’s profitability is relatively stable comparing to dairy farming business. Assuming raw
milk price in FY16 is 5% lower than our estimate, the Company’s gross margin will be 1.4 ppts below our previous estimate
and adjusted net profit will be 6.6% lower than our previous estimate. Comparing to CMD, Huishan’s adjusted net profit is less
sensitive to raw milk price fluctuation. According to our estimate, CMD’s core net profit will fall by approximately 20% if raw
milk price is 5% lower than our estimate.
Table-7: Sensitivity Analysis for Change in Raw Milk Price in FY16
Revenue
Adjusted Net Profit
Chg. in ASP
Gross Margin
(RMB million)
(RMB million)
Adjusted Net
Margin
Chg. in Adjusted
Net Profit
-5%
5,169
62.7%
1,771
34.3%
-6.6%
-3%
5,200
63.3%
1,821
35.0%
-4.0%
-1%
5,231
63.9%
1,871
35.8%
-1.3%
Base Case
5,247
64.2%
1,896
36.1%
n.a.
1%
5,263
64.4%
1,921
36.5%
1.3%
3%
5,294
65.0%
1,971
37.2%
4.0%
5%
5,325
65.6%
2,021
38.0%
6.6%
China Huishan Dairy 中国辉山乳业 (06863 HK)
proportion of internal raw milk consumption (Huishan: 57.4% in FY15F; CMD: 10.1% in 2014; YST: Nil in 2014; Shengmu:
Company Report
Source: Guotai Junan International.
See the last page for disclaimer
Page 21 of 26
VALUATION
companies; and 2) Absolute valuation using Discounted Cash Flow method.
Dairy Farming Manufacturers Listed in Hong Kong are the Closest Peers. CMD, YST and Shengmu are the closest
peers listed in Hong Kong that all these companies and Huishan engages in dairy farming business. On the other hand,
1 April 2015
We apply two methods to valuate Huishan: 1) Relative valuation using peer comparison with HK-listed dairy farming
Huishan also engages in liquid milk and milk powder businesses so that liquid milk and IMF manufacturers are also
comparable peers. Liquid milk manufacturers listed in Hong Kong and China include Yili, Mengniu, Bright Dairy and Beijing
Sanyuan (600429 CH). Major Hong Kong and China-listed IMF manufacturers are Beingmate, Biostime, Yashili and Ausnutria
(01717 HK).
Similar Valuation Compared to China Modern Dairy. Comparing Huishan with CMD, Huishan is subject to less single
customer risk that the Company is allowed to sell raw milk to both Yili and Mengniu, while CMD is not allowed to sell its raw
milk to Yili and Bright Dairy. In addition, Huishan’s liquid milk business (Latest 12 Months: RMB2,463 million) is much larger
than that of CMD (2014: RMB833 million), which provides stable free cash inflow to the Company. On the other hand,
Huishan’s internal consumption of raw milk accounted for more than 50% of total raw milk output, while CMD internal
consumption accounted for 10.1% of total raw milk output in 2014. Thus, Huishan’s results are less affected by raw milk price
fluctuation. However, all Huishan’s dairy farms are located in Liaoning, while CMD’s dairy farms are more diversely located.
Thus, CMD faces less risk of oversupply issue of raw milk. On the other hand, Huishan’s profitability was higher than other
peers’ as the Company involves in planting and processing of agriculture products. However, Hong Kong-listed agricultural
processing companies’ valuations are much lower than those of food and beverage peers. To conclude, we expect Huishan’s
Slight Valuation Premium over Shengmu. Shengmu mainly sold its raw milk to Mengniu before 2013. Shengmu entered into
a raw milk supply agreement with Yili in July 2013. In 2013, Mengniu and Yili accounted for 79.3% and 19.4% of Shengmu’s
raw milk sales, respectively. In 1Q14, Shengmu also entered into raw milk supply agreements with Want Want (00151 HK).
Similar to that of Huishan, Shengmu is another vertically integrated “grass-to-glass” dairy farming companies but focuses on
organic raw milk. Shengmu’s revenue generated from liquid milk business was only approximately 30% of that of Huishan. In
addition, Shengmu focuses on producing UHT milk only, while Huishan’s dairy products’ portfolio is more comprehensive than
that of Shengmu. Thus, we expect Huishan to be awarded a slight valuation premium over Shengmu.
Premium Valuation over YuanShengTai. YST’s top five customers were Yili, Mengniu, Feihe Dairy Group, Bright Dairy and
Aibeite in 2013. The largest customer and five largest customers accounted for 36% and 100% of YST’s sales in 2013,
respectively. Although YST’s customer base is larger than that of Huishan, YST does not engage in agriculture planting and
China Huishan Dairy 中国辉山乳业 (06863 HK)
valuation to be similar to that of CMD.
liquid milk businesses. Thus, YST’s free cash flow is expected to be weaker than that of other dairy farming peers. On the
other hand, YST is the only dairy farming company which does not engage in liquid milk business. Therefore, YST’s results will
be hugely affected by raw milk price fluctuation and are subject to the highest risk comparing to peers when raw milk price falls.
To sum up, we expect Huishan to trade at a premium over YST.
Discount over Liquid Milk and IMF Manufacturers. Liquid milk and IMF manufacturers are able to freely adjust their
products’ ASP, while raw milk base price is determined by demand and supply of raw milk and dairy products. Liquid milk and
IMF manufacturers’ cash flows are generally stronger than that of dairy farming companies due to lower CAPEX. In addition,
liquid milk and IMF manufacturers sell their end-products directly to distributors and/or retailers and their brand recognition is
much higher than that of dairy farming companies, which sell their raw milk to liquid milk and IMF manufacturers for further
Company Report
processing. Therefore, we expect Huishan to trade at a discount over liquid milk and IMF manufacturers.
See the last page for disclaimer
Page 22 of 26
Company
Ticker
$
Share
Price
Market Cap
(HK$ mn)
PER (x)
PBR (x)
ROE (%)
EBITDA
Margin (%)
FY14A
FY15F
FY16F
FY14A
FY15F
FY15F
FY15F
Dairy Farming Companies
China Huishan Dairy
06863 HK
HK$
1.410
20,191
12.0
9.9
8.5
1.1
1.1
11.8
43.2
China Shengmu Organic Milk
01432 HK
HK$
2.080
13,217
14.0
10.8
7.5
3.2
2.0
24.3
40.8
China Modern Dairy
01117 HK
HK$
2.600
12,551
13.6
10.6
8.9
1.5
1.4
13.3
27.2
YuanShengTai Dairy Farm
01431 HK
HK$
0.890
3,479
6.6
5.9
4.7
0.6
0.5
10.2
40.8
Simple Average
11.5
9.3
7.4
1.6
1.3
14.9
38.0
Weighted Average
12.5
10.0
8.1
1.8
1.4
15.4
38.3
1 April 2015
Table-8: Peers Valuation Comparison
Liquid Milk Manufacturers
Inner Mongolia Yili
600887 CH
RMB
31.440
120,530
21.5
17.6
14.9
4.6
4.3
24.9
11.4
China Mengniu Dairy
02319 HK
HK$
40.550
79,463
26.6
23.4
19.9
3.0
2.7
12.0
8.5
Bright Dairy & Food
600597 CH
RMB
19.840
30,545
43.1
30.0
23.2
5.4
4.7
15.8
6.4
Beijing Sanyuan Foods
600429 CH
RMB
11.010
20,627
122.3
110.1
73.4
n.a.
n.a.
2.5
2.2
Simple Average
53.4
45.3
32.8
4.3
3.9
13.8
7.1
Weighted Average
34.0
28.5
22.3
4.1
3.8
17.9
9.1
002570 CH
RMB
20.870
26,697
69.1
39.1
31.6
4.4
4.5
10.9
9.7
Biostime International
1112 HK
HK$
32.000
19,419
19.0
18.4
17.2
5.3
4.7
26.9
24.6
Yashili International
1230 HK
HK$
2.830
13,430
32.1
27.5
22.3
2.5
1.8
8.0
14.3
Ausnutria Dairy
1717 HK
HK$
2.690
2,655
23.5
n.a.
n.a.
1.9
n.a.
n.a.
n.a.
Simple Average
35.9
28.3
23.7
3.5
3.7
15.3
16.2
Weighted Average
43.5
29.7
24.8
4.2
4.0
15.4
15.6
Source: Bloomberg, Guotai Junan International.
Note: All data are updated as at 1 April 2015.
Table-9: DCF Valuation
WACC Calculation
Risk-Free Rate
Market Risk Premium
Beta
Cost of Equity
g = 2.50%
DCF Calculation (HK$ million)
1.75%
11.44%
0.75
10.33%
4,432
PV of Free Cash Flow to the Firm (FY15-FY24)
23,495
PV of Terminal Value
Net (Debt)/Cash & Minority Interest
(4,987)
NAV
22,940
1.60
NAV / Share (HK$)
Cost of Debt
6.35%
Effective Tax Rate
4.61%
After Tax Cost of Debt
6.08%
D/(D+E)
WACC
Sensitivity Analysis on FY16 NAV (HK$ / Share)
1.5%
40.00%
9.11%
WACC
Perpetual Growth Rate
RMB/HKD
2.50%
0.79
Perpetual Growth Rate
2.0%
2.5%
3.0%
3.5%
7.6%
2.04
2.23
2.46
2.74
3.08
8.1%
1.78
1.94
2.12
2.34
2.61
8.6%
1.56
1.69
1.84
2.01
2.22
9.1%
1.37
1.48
1.60
1.74
1.91
9.6%
1.21
1.30
1.40
1.52
1.65
10.1%
1.06
1.14
1.22
1.32
1.44
10.6%
0.94
1.00
1.07
1.16
1.25
Source: Guotai Junan International.
See the last page for disclaimer
Page 23 of 26
Company Report
Beingmate Baby & Child Food
China Huishan Dairy 中国辉山乳业 (06863 HK)
Infant Formula Manufacturers
Initiate with “Accumulate” and Set TP at HK$1.60. Valuations of dairy farming companies are under pressure as raw milk
price in China continues to fall. Raw milk price might continue to be under pressure in 2Q15 and 3Q15 as demand for dairy
favours dairy manufacturers to produce dairy products using milk powder. However, we believe that reconstituted milk will not
be welcomed by consumers and demand for raw milk will speed up. In addition, the fall in raw milk price puts pressure on
small dairy farmers and dairy farmers might choose to sell dairy cows if raw milk price continues to fall. Therefore, we expect
raw milk price to stabilise in 2015 and valuation of dairy farming companies could rise if earnings continue to grow despite
1 April 2015
products remain weak, while supply of premium raw milk continues to rise and low cost milk powder as a substitute to raw milk
expected fall in raw milk price. With respect to the assumptions stated in Table-9, our DCF model suggests Huishan’s fair
value should be HK$22,845 million, or HK$1.60/share. Huishan is currently trading at 11.7x FY14 reported PER and 10.2x
FY14 adjusted PER, which is not demanding as we expect the Company’s adjusted EPS to deliver a CAGR of 13.7% during
FY14-FY17. In addition, the Company is trading at approximately 32% discount to its historical average PER and 25%
discount to historical average PBR. Thus, we initiate “Accumulate” on Huishan and TP is set at HK$1.60, which represents
11.6x FY15 adjusted PER, 9.6x FY16 adjusted PER and 7.6x FY17 adjusted PER.
Figure-61: Huishan’s Reported and Adjusted PER
Figure-62: Huishan’s PBR
30.0
3.0
25.0
2.5
20.0
2.0
15.0
1.5
10.0
1.0
0.0
Sep-13
Reported PER (x)
Adjusted PER (x)
Average Reported PER (x)
Average Adjusted PER (x)
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Source: the Company, Bloomberg, Guotai Junan International.
0.5
Mar-15
PBR (x)
0.0
Sep-13
Dec-13
Mar-14
Jun-14
Average PBR (x)
Sep-14
Dec-14
Mar-15
Source: the Company, Bloomberg, Guotai Junan International.
MAJOR RISKS
Weakening Raw Milk Price. Raw milk price in China is still declining, which imposes a negative impact to Huishan’s
profitability of dairy farming business. We expect raw milk supply in China, especially in Northern and Northeastern regions of
China, to grow at a faster pace than dairy products’ demand growth. Although we do expect Huishan’s raw milk ASP to fall by
4.5%, 4.5% and 2.0% in FY15-FY17, respectively, raw milk price could be weaker than our estimate. To recap, if raw milk
price is 5% below our estimate, adjusted net profit in FY16 will be 6.6% lower than our forecast.
China Huishan Dairy 中国辉山乳业 (06863 HK)
5.0
Intensifying Competition of Liquid Milk Business in Liaoning. Huishan’s liquid milk business reported satisfactory growth
during FY12-FY14, which was partially due to increasing contribution from yogurt and fresh milk. Huishan enjoys advantages
over major liquid milk manufacturers in promoting yogurt and fresh milk as the Company produces premium raw milk herself,
while other peers procure raw milk from Huishan or other dairy farming companies. However, Huishan’s branding power in
UHT milk and milk beverages are expected to be weaker than its peers’. In addition, Huishan also faces competition from
imported UHT milk. If Huishan’s liquid milk business underperforms our forecast, the Company has to sell its raw milk to liquid
milk manufacturers, which could put more pressure on raw milk ASP.
Unsuccessful Expansion in Jiangsu. In Nov. 2014, Huishan entered into a formal JV agreement with Zongyi Group to
establish a JV in Yancheng, Jiangsu for distributing consumer dairy products to Eastern China. Huishan will hold 65% equity
with the consumer market in Eastern China, Huishan does not. In addition, due to difference of weather in Liaoning and
Jiangsu, Huishan’s agriculture planting and dairy farming businesses could face unexpected risks in trial operation.
See the last page for disclaimer
Page 24 of 26
Company Report
interest in the JV, while Zongyi holds the rest. The initial investment for setting up the JV is RMB1,000 million but the project
will need a funding of up to RMB2,500 million for the period between Sept. 2014 and Dec. 2018. Although Zongyi is familiar
Financial Statements and Ratios
Balance Sheet
FY14A
FY15F
FY16F
FY17F
As at Mar 31 (RMB m)
FY13A
FY14A
FY15F
FY16F
FY17F
681
989
1,235
1,492
1,756
PP&E
3,832
5,337
8,005
9,807
10,663
1,707
2,288
2,414
2,670
2,955
Biological Assets
3,242
4,359
5,543
7,107
8,010
Milk Powder
88
254
591
1,085
1,953
Lease Prepayments
521
3,043
3,863
3,993
3,493
Grain Processing
77
0
0
0
0
Others
970
998
551
537
561
Total Turnover
2,552
3,530
4,240
5,247
6,665
8,565
13,738
17,963
21,444
22,727
Cost of Sales
(2,110)
(2,821)
(3,590)
(4,500)
(5,448)
Inventories
447
915
1,554
1,764
1,961
954
1,564
2,132
2,619
3,072
Other Receivables
501
784
504
519
551
1,396
2,273
2,782
3,366
4,289
Trade Receivables
173
220
268
306
370
Cash Equivalents
826
5,063
3,219
2,982
3,070
Liquid Milk
Fair Value on Agriculture
Gross Profit
Non-Current Assets
Other Net Income
42
9
55
40
45
Term Deposits
0
300
1,000
1,000
1,000
Distribution Costs
(106)
(344)
(615)
(735)
(966)
Current Assets
1,946
7,283
6,544
6,572
6,952
(91)
(370)
(376)
(447)
(531)
1,241
1,568
1,846
2,224
2,837
Trade & Bills Payables
910
738
965
1,109
1,210
Other Payables
435
490
609
581
534
Bank Loans
909
1,641
2,357
3,000
3,000
Administrative Expenses
EBIT
Finance Income, Net
(142)
Share of JV
(206)
(299)
(327)
(391)
0
0
0
(25)
0
1,099
1,363
1,547
1,872
2,446
Fair Value on Biological
(87)
(68)
(167)
(286)
(389)
Income Tax
(67)
(45)
(59)
(74)
Profit After Tax
945
1,249
1,322
1,512
0
0
0
18
(9)
945
1,249
1,322
1,530
1,930
1,040
1,470
1,588
1,896
2,383
EBT
Minority Interests
Reported Net Profit
Adjusted Net Profit *
39
51
57
68
84
Current Liabilities
2,292
2,919
3,989
4,758
4,829
(119)
Bank Loans
2,103
4,679
5,500
7,000
7,000
1,939
Others
233
227
230
230
225
2,336
4,906
5,730
7,230
7,225
Reported EPS (RMB)
0.082
0.096
0.092
0.107
0.135
Adjusted EPS (RMB)
0.091
0.113
0.110
0.132
0.166
DPS (RMB)
0.000
0.022
0.023
0.027
0.034
Others
Non-Current Liabilities
Minority Interests
0
0
350
333
341
Shareholders' Equity
5,883
13,195
14,439
15,695
17,283
BPS (RMB)
0.512
0.916
1.029
1.119
1.231
Financial Ratio
Cash Flow Statement
Year end Mar 31 (RMB m)
FY13A
FY14A
FY15F
FY16F
FY17F
1,012
1,294
1,547
1,872
2,446
69
164
280
450
Finance Costs, Net
140
178
285
Fair Value Change
52
0
Other Non-Cash Items
(5)
Working Capital Change
Tax Paid
Net CFO
1,442
Sales Growth (%)
Profit Before Tax
Depr. & Amort.
FY14A
FY15F
FY16F
FY17F
91.5
38.3
20.1
23.7
27.0
Gross Profit Growth (%)
154.1
62.8
22.4
21.0
27.4
581
EBIT Growth (%)
148.2
26.4
17.7
20.5
27.6
313
377
Reported NP Growth (%)
110.2
32.1
5.8
15.7
26.2
167
286
389
Adjusted NP Growth (%)
169.6
41.3
8.1
19.3
25.7
123
83
85
40
228
(537)
(356)
(141)
(231)
Gross Margin (%)
54.7
64.4
65.6
64.2
64.3
(54)
(70)
(62)
(81)
(134)
Adjusted EBITDA Margin (%)
50.5
52.4
48.6
47.0
46.4
1,152
1,944
2,784
3,468
EBIT Margin (%)
48.6
44.4
43.5
42.4
42.6
Reported Net Margin (%)
37.0
35.4
31.2
29.2
29.0
35.7
(538)
(4,271)
(2,960)
(2,471)
(1,045)
Adjusted Net Margin (%)
40.8
41.6
37.5
36.1
(1,003)
(1,215)
(1,704)
(2,122)
(1,704)
ROA (%)
10.7
7.9
5.8
5.8
6.7
174
(437)
(134)
278
319
ROE (%)
27.9
13.1
9.6
10.2
11.7
(1,367)
(5,923)
(4,798)
(4,315)
(2,430)
Inventory Days
79.9
118.0
176.6
180.5
170.4
386
3,315
1,537
2,143
0
Trade Receivable Days
22.9
20.3
21.0
20.0
18.5
(191)
(263)
(450)
(495)
(545)
Trade Payable Days
103.5
98.4
93.9
90.0
85.0
55
6,000
(18)
(330)
(381)
Cash Conversion Cycle
(0.6)
40.0
103.7
110.5
103.9
Net FCF
250
9,052
1,069
1,318
(926)
Current Ratio (x)
0.8
2.5
1.6
1.4
1.4
Change in Cash
325
4,281
(1,785)
(213)
112
Quick Ratio (x)
0.7
2.2
1.3
1.0
1.0
FOREX
(12)
(44)
(58)
(24)
(24)
Net Gearing (%)
37.2
7.3
25.2
38.3
34.3
8.8
7.6
6.2
6.8
7.3
Biological Assets
Others
Net CFI
Net Borrowings
Interest Paid
Others
Ending Cash
826
5,063
3,219
2,982
3,070
Net Interest Cover (x)
Source: the Company, Guotai Junan International.
* Exclude fair value changes on biological assets, IPO expenses and share option expenses.
See the last page for disclaimer
Company Report
PP&E & Leases
FY13A
1 April 2015
Dairy Farming
FY13A
China Huishan Dairy 中国辉山乳业 (06863 HK)
Income Statement
Year end Mar 31 (RMB m)
Page 25 of 26
Company Rating Definition
The Benchmark: Hong Kong Hang Seng Index
Rating
Definition
Buy
Relative Performance >15%;
or the fundamental outlook of the company or sector is favorable.
Relative Performance is 5% to 15%;
or the fundamental outlook of the company or sector is favorable.
Accumulate
Neutral
Relative Performance is -5% to 5%;
or the fundamental outlook of the company or sector is neutral.
Reduce
Relative Performance is -5% to -15%;
or the fundamental outlook of the company or sector is unfavorable.
Sell
Relative Performance <-15%;
or the fundamental outlook of the company or sector is unfavorable.
1 April 2015
Time Horizon: 6 to 18 months
Sector Rating Definition
The Benchmark: Hong Kong Hang Seng Index
Definition
Relative Performance >5%;
or the fundamental outlook of the sector is favorable.
Neutral
Relative Performance is -5% to 5%;
or the fundamental outlook of the sector is neutral.
Underperform
Relative Performance <-5%;
or the fundamental outlook of the sector is unfavorable.
DISCLOSURE OF INTERESTS
(1)
(2)
(3)
(4)
The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report.
The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report.
Except for Shandong Chenming Paper Holdings Limited-H shares (01812), China All Access (Holdings) Limited (00633), Guangshen
Railway Company Limited-H shares (00525), Guotai Junan International Holdings Limited (01788) and Binhai Investment Company
Limited (02886), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer
mentioned in this Research Report.
Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report
within the preceding 12 months.
DISCLAIMER
This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities
(Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in
research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor,
underwriter or invest proprietarily).
China Huishan Dairy 中国辉山乳业 (06863 HK)
Time Horizon: 6 to 18 months
Rating
Outperform
Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales
persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or
be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.
Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does
not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking
estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and
mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks,
and where necessary consult their own financial advisers prior to any investment decision.
This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located
in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would
subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.
See the last page for disclaimer
Company Report
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