China Youran Dairy (9858 HK): Milking every moment
- IPO subscription opens on Monday, 7 June and closes on Thursday, 10 June. It will start trading Friday, 18 June.
- Youran is the largest integrated provider of products and services in China’s upstream dairy industry in terms of revenue in 2020. It engages in two segments of business, namely raw milk and comprehensive ruminant farming solutions. Each of the business lines are highlighted below:
Raw Milk
| Raw milk | Provide raw milk to large-scale dairy manufacturers |
Comprehensive ruminant farming solutions
| Feed business | Provide nutritious concentrated feed and forage grass for dairy farms and offer ancillary ruminant farming support services, such as ruminant nutrition, breeding technique, and ruminant healthcare, free of charge. |
| Breeding business | Provide dairy farms with access to high-quality frozen bovine semen for dairy cattle and beef cattle in China and overseas |
| Ruminant farming products marketplace business | Provide ruminant farming products purchased from selected suppliers, such as veterinary drugs, animal husbandry equipment and other items for dairy farms |
Financial highlights:
| (RMB mn) | FY20 | YoY change | FY19 | YoY change | FY18 |
| Revenue | 11,781.2 | 53.6% | 7667.8 | 21.1% | 6,333.9 |
| Raw milk | 6,994.6 | 128.3% | 3,063.6 | 17.4% | 2,610.3 |
| Comprehensive ruminant farming solutions | 4786.6 | 4.0% | 4604.2 | 23.6% | 3723.6 |
| Gross profit | 3,603.2 | 91.0% | 1,886.3 | 22.0% | 1,545.7 |
| Raw milk | 2,994.5 | 134.1% | 1279 | 20.6% | 1060.1 |
| Comprehensive ruminant farming solutions | 608.7 | 0.2% | 607.3 | 25.1% | 485.6 |
| Net profit | 1,540.6 | 92.1% | 801.9 | 22.8% | 652.9 |
Operations highlights:
| (RMB mn) | FY20 | YoY change | FY19 | YoY change | FY18 |
| Dairy farms | 67 | 67.5% | 40 | 5.3% | 38 |
| Dairy cows (in heads) | 308,195 | 102.7% | 152,037 | 19.4% | 127,345 |
| Raw milk production volume of Youran (tonnes) | 860,413 | 28.4% | 670,196 | 13.9% | 588,558 |
| Raw milk production volume of SKX (tonnes) | 714,514 | 15.7% | 617,775 | 8.1% | 571,426 |
*Youran owns 58.36% equity of SKX
Peer comparison:
| FY20 | Dairy farms | Dairy cows (heads) | Raw milk production (mn tonnes) | Annual milk yield per milkable cow (tonnes) |
| Youran Dairy (incorporate SKX) | 67 | 308,195 | 1.57 | 10.0 (SKX: 8.6) |
| Modern Dairy | 26 | 247,371 | 1.49 | 11.1 |
| GPM | NPM | Net gearing | PER based on FY20 EPS | |
| Youran Dairy (incorporate SKX) | 38.1% (excluding SKX: 28.1%) | 13.1% | 71.6% | 19.0x (mid-pricing range) |
| Modern Dairy | 40.80% | 13.0% | 53.4% | 15.6x |
- The initial pricing (mid-range) implies a valuation of around 19x historical PE. However, its peer China Modern Dairy’s 5-year PE is 17.5x, and its current PE is 15.6x. Given the equivalent profitability, Youran has a higher net gearing than its peer. While relatively overpriced compared to China Modern Dairy, the performance of Youran’s shares when it starts trading next week will thus depend largely on its earnings growth potential in 2021.