Recovering earnings growthBright reported 3Q16 results with 6.2% sales growth and 262% yoy net profitgrowth to Rmb185m, helped by lower raw milk costs, operating efficiencyimprovement and lower comparing base. We raised our full-year net profitforecast by 9.8% as we expect margin expansion trend to continue in 4Q16.
We are maintaining our Hold rating on its full valuation at 30x 2016 P/E.
Industry demand remained weak; margin expansion drives earnings growthThe company indicated that market demand growth remained challenging in3Q16, though its sales growth improved from 0.4% in 1H16 to 6.2% in 3Q16.
We believe that the sales growth is mainly helped2 by the price hike in itsindustrial milk powder business in New Zealand. Operating margin expanded190bps yoy in 3Q16, helped by the expansion in gross margin on lower yoyraw milk costs for liquid milk and 130bps lower selling expense/sales ratio yoy.
4Q16 outlook: cost control should continue to be core driverWe expect the sales growth to be under pressure in the near term, and weforecast it continue to lose market share in UHT yoghurt due to the aggressivespending in promotion by Mengniu and Yili. Yet we forecast the margin tocontinue to expand in the near term, helped by its efficient operating expensecontrol and lower raw milk costs yoy.
Maintaining HoldWe raise our 2016-18 earnings by 5-10%, mainly to factor in the marginexpansion on stronger cost control. We raised our target price by 9.7% toRmb13.6 based on a DCF model. We are maintaining our Hold rating, giventhat the stock is trading at 27x 2017 P/E, compared to the peers’ average of20x. Upside risk: successful new product launches. Downside risk: increasingcompetition. More details on valuation and risks.
軸承展-2017年廣州國際軸承及其裝備展覽會-2017 China(Guangzhou) Int’l Bearing and Equipment Exhibition
