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 milkProvide raw milk to large-scale dairy manufacturers

Comprehensive ruminant farming solutions

Feed businessProvide 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 businessProvide dairy farms with access to high-quality frozen bovine semen for dairy cattle and beef cattle in China and overseas
Ruminant farming products marketplace businessProvide ruminant farming products purchased from selected suppliers, such as veterinary drugs, animal husbandry equipment and other items for dairy farms

Financial highlights:

(RMB mn)FY20YoY changeFY19YoY changeFY18
Revenue  11,781.253.6%7667.821.1%  6,333.9
Raw milk6,994.6128.3%  3,063.617.4%  2,610.3
Comprehensive ruminant farming solutions4786.64.0%4604.223.6%3723.6
Gross profit3,603.291.0%  1,886.322.0%  1,545.7
Raw milk      2,994.5134.1%127920.6%1060.1
Comprehensive ruminant farming solutions608.70.2%607.325.1%485.6
Net profit    1,540.692.1%801.922.8%652.9

Operations highlights:

(RMB mn)FY20YoY changeFY19YoY changeFY18
Dairy farms6767.5%405.3%38
Dairy cows (in heads)    308,195102.7%    152,03719.4%    127,345
Raw milk production volume of Youran (tonnes)    860,41328.4%    670,19613.9%    588,558
Raw milk production volume of SKX (tonnes)    714,51415.7%    617,7758.1%    571,426

*Youran owns 58.36% equity of SKX

Peer comparison:

FY20Dairy farmsDairy cows (heads)Raw milk production (mn tonnes)Annual milk yield per milkable cow (tonnes)
Youran Dairy (incorporate SKX)67308,1951.5710.0 (SKX: 8.6)
Modern Dairy26247,3711.4911.1
 GPMNPMNet gearingPER based on FY20 EPS
Youran Dairy (incorporate SKX)38.1% (excluding SKX: 28.1%)13.1%71.6%19.0x (mid-pricing range)
Modern Dairy40.80%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.