Competition a drag

Investment Thesis

Leading position in pasteurised milk market position, but hampered by intense competition in other dairy categories. Bright Dairy, which commands 40% of the pasteurised milk market, has been expanding its pasteurised milk brands (Bright Dairy, UBest, Youzhi) and riding on positive industry trends. However, the company’s market position in other categories (UHT milk, UHT yogurt) beyond East China has been hampered by tough competition. We forecast liquid milk sales to grow by 6% in FY22F.

Expect Bright Dairy to be most sensitive to raw milk price upcycle. Due to thin margins averaging 2-3% in the past three years, Bright Dairy is susceptible to rising raw milk prices.

OEM milk powder business growing fast. In 2017-19, milk powder sales recorded a CAGR of 10% in revenue versus liquid milk’s 3%. While the OEM powder business has been robust, the gross margin stood at 15% on average versus the group average of 31%.