20130923-巴黎银行证券-BIOSTIME_INTERNATIONAL_11页_448kb

Biostime International Summary

Core Content

Biostime International (1112 HK) is a leading baby product company in China, with a strong focus on infant formula, baby food, and baby care products. The company has demonstrated solid management, a sophisticated client relationship management system, and a high-quality product lineup. It has also established a significant market presence through its Mama100 O2O platform, which is expected to be a key driver of future growth.

Main Points

Investment Thesis

• Biostime is a high-quality consumer product company with sound management and healthy cash flows and balance sheet.
• The company has strong execution capabilities, capturing 6% of the infant formula market in just five years.
• Its Mama100 platform allows it to expand beyond infant formula into broader baby product categories, offering significant growth potential.
• The company is not only an infant formula company but also a multi-product platform, which is expected to support long-term growth.

Catalysts for Growth

• The AdiMil product, a new nutrient-enriched infant formula, has shown strong performance, with average daily sales reaching RMB600,000.
• The product has attracted 77% new customers, indicating strong market share gains and minimal cannibalization.
• The Mama100 platform is expected to enhance distribution and customer engagement, with plans to integrate with major platforms like Tencent WeChat, Sina Weibo, T-Mall, and Jingdong.
• Biostime is likely to beat earnings consensus in 2013 due to successful new product launches and the impact of the New Zealand milk powder recall.

Valuation and Target Price

• The target price is raised to HKD70.50, set at 25x FY14E PE, which is considered undemanding compared to Chinese F&B peers.
• Biostime's market cap has exceeded USD4b, and the company no longer deserves the small-cap discount.
• The recurring EPS is forecasted to grow from RMB1.80 (2013E) to RMB2.20 (2014E), with a 3.4% increase in 2013 and 22.2% in 2014.
• The company's recurring net profit is expected to grow from RMB945m (2013E) to RMB1,344m (2014E), and RMB1,630m (2015E).

Key Risks

• The greatest risk is government policy changes, which may require Biostime to invest in upstream or manufacturing, potentially impacting its margins and ROE.
• Regulatory tightening on infant formula may increase operating costs and reduce profitability.

Key Financial Highlights

Growth Drivers

• AdiMil Product: Successfully launched, with high customer acquisition and minimal cannibalization of existing products.
• Mama100 O2O Platform: Aims to expand the company's reach and integrate with multiple online retail platforms.
• New Product Launches: Expected to drive short-term performance and support long-term growth.
• M&A Potential: Offers additional avenues for growth and diversification.

Comparative Analysis

Key Assumptions and Outlook

• AdiMil's Impact: Expected to contribute significantly to growth, with a focus on attracting new customers.
• Mama100 Platform: Seen as a potential game-changer, with the goal of becoming a one-stop platform for all baby-related products.
• EPS Forecasts: The analyst's EPS forecasts are 17.8% and 8.4% ahead of the Bloomberg consensus for FY13 and FY14, respectively.
• Growth Expectations: Revenue is projected to grow at 41.0% in 2013 and 28.0% in 2014, with a 25x FY14E PE as the basis for the new target price.

Conclusion

Biostime International is positioned as a high-quality consumer product company with significant growth potential due to its strong distribution network, new product launches, and O2O platform. While the company faces regulatory risks, its strong financials, competitive advantages, and expanding product portfolio support a positive outlook. The raised target price of HKD70.50 reflects confidence in its future performance and valuation.