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Scaling up

Investment Thesis

Raw milk price on an upcycle. China Modern Dairy (CMD) is a key beneficiary of the raw milk upcycle led by tightening milk supply and rising demand for pasteurised products. We forecast raw milk prices to increase 9%/2% in FY21/22F.

Expanding herd size. Supported by its strategic shareholders China Mengniu and New Hope Dairy, we forecast CMD’s sales volume to grow by 12%/9% in FY21/22F. The company is also committed to expanding its herd size in the next two to three years to take advantage of the tightening supply.

Committed to improving its financials. CMD intends to improve its financial position. With the expansion of herd size through acquisitions, we expect net gearing to rise in the short run and ease thereafter as free cash flow generation improves.

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