Market Report Summary - 9 January 2015
Core Content
This market report provides an overview of the TMT sector and analysis of Yashili International (1230.HK), including its business performance, new CEO, and valuation. It also includes key financial data and market indices across different regions.
Main Points
Yashili International (1230.HK)
- Valuation Concerns: The current valuation of 16.4x 2015F PE is considered rich, and the report does not foresee significant catalysts before 2Q15.
- New CEO: Mr. LU Minfang has replaced Mr. ZHANG Lidan as CEO. Mr. Lu has a strong background in the dairy and baby food industry, having previously led Dumex Baby Food and served as non-executive chairman of Danone Early Life Nutrition Greater China.
- Business Challenges:
- In 2014, the company launched new products for the baby specialty store channel and postponed e-commerce product launches, leading to a weaker top line.
- The company expects to introduce 4 new products for the baby specialty store and 4 for the e-commerce channel in 2015.
- There may be an injection of the Mengniu Arla brand in 2Q15, which reached breakeven in 2014.
- Reduced promotion in 4Q14, especially for the Double 11 event, negatively impacted growth.
- Financial Outlook for 2015:
- Gross margin is expected to expand due to lower raw material costs and economies of scale.
- SG&A expenses may rise due to new product launches, product portfolio streamlining, and higher depreciation from the New Zealand factory.
- Market Position:
- The domestic infant formula market is highly competitive, and Yashili must streamline its product portfolio and focus on the e-commerce channel, which is a major revenue driver.
- The new CEO may lead to deeper cooperation with Danone and potentially a share option scheme.
TMT Sector Highlights
- JD Launches Mobile Shopping App: JD introduced a mobile shopping app, Paipai Weidian, targeting the mCommerce market through its C2C e-commerce arm.
- Food Delivery Startup Secures Funding: A Chinese food delivery startup, Line0, received $30M in Series B funding led by Tencent.
- P2P Lending Startup Gains Investment: Hong Kong-based P2P lending startup WeLab secured $20M in funding to expand into mainland China.
- Alipay Expands Offline Payment Network: Alipay is partnering with third-party agencies to expand its offline payment network.
- Nokia Provides Map Data for Baidu: Baidu has partnered with Nokia to provide overseas map data for Chinese outbound tourists.
Key Financial Data for Yashili International
| Metric |
2014 |
2015F |
| Gross Margin |
53.4% |
Expected to expand |
| Operating Margin |
53.5% |
Expected to be affected by SG&A costs |
| Market Cap (HK$) |
HK$8.08 billion |
- |
| Market Cap (US$) |
US$1.04 billion |
- |
| Free Float |
23.42% |
- |
| Price (8 Jan) |
HK$2.27 |
- |
| 52W High |
HK$4.80 |
- |
| 52W Low |
HK$2.07 |
- |
| EPS (RMB) |
0.1 |
0.1 |
| EPS Change (%) |
-18.7 |
11.0 |
| PER (x) |
18.3 |
16.4 |
| EV/EBITDA (x) |
8.8 |
6.7 |
| PBR (x) |
2.0 |
1.9 |
| Net Debt/Equity (%) |
-15.1 |
-37.9 |
Peer Comparison
| Company |
Ticker |
Price (HK$) |
EPS Change (%) |
PER (x) |
PBR (x) |
Dvd Yield (%) |
ROE (%) |
| Yashili International |
1230.HK |
2.27 |
11.0 |
16.4 |
1.9 |
2.4 |
11.5 |
| China Modern Dairy Holdings |
1117.HK |
2.40 |
8.8 |
8.9 |
1.4 |
0.9 |
16.5 |
| China Huishan Dairy Holdings |
6863.HK |
1.38 |
20.0 |
11.1 |
1.1 |
2.0 |
10.8 |
| China Shengmu Organic Milk |
1432.HK |
2.37 |
53.7 |
17.6 |
3.7 |
0.0 |
25.0 |
| Yuanshengtai Dairy Farm Ltd |
1431.HK |
0.83 |
30.7 |
5.8 |
0.6 |
0.0 |
10.6 |
| China Mengniu Dairy Co |
2319.HK |
32.80 |
17.6 |
24.7 |
2.5 |
0.9 |
11.7 |
| BioTime International Holding |
1112.HK |
16.20 |
(20.4) |
11.9 |
2.9 |
4.1 |
26.2 |
| Inner Mongolia Yili Industries-A |
600887.CH |
28.64 |
32.7 |
19.6 |
4.2 |
2.1 |
22.9 |
| Bright Dairy & Food Co Ltd-A |
600597.CH |
17.74 |
48.8 |
36.1 |
4.7 |
1.5 |
12.4 |
Stock Market Performance (8 Jan)
| Index |
Price |
Abs Chg |
% Chg |
| Hang Seng Index |
23,836 |
154 |
0.7 |
| H-share Index |
12,024 |
33 |
0.3 |
| CSI 300 Index |
3,559 |
(85) |
(2.3) |
| Sh Composite Index |
11,465 |
(148) |
(1.3) |
| Sz Composite Index |
1,451 |
(6) |
(0.4) |
| Nikkei 225 |
17,167 |
282 |
1.7 |
| Korea KOSPI |
1,905 |
21 |
1.1 |
| Taiwan TWSE |
9,238 |
158 |
1.7 |
| India Sensex 30 |
27,275 |
366 |
1.4 |
| DJIA |
17,908 |
323 |
1.8 |
| S&P 500 |
2,062 |
36 |
1.8 |
| NASDAQ |
4,736 |
86 |
1.8 |
| UK FTSE 100 |
6,570 |
150 |
2.3 |
| Germany DAX |
9,838 |
319 |
3.4 |
| France CAC40 |
4,260 |
147 |
3.6 |
Other Indicators (8 Jan)
| Indicator |
Price |
Abs Chg |
Chg % |
| WTI oil $/bl |
48.8 |
0.1 |
0.3 |
| Gold $/troy oz |
1,213.5 |
0.0 |
0.0 |
| Copper fut. $/metric ton |
6,115.0 |
0.0 |
0.0 |
| Aluminum fut. $/metric ton |
1,790.0 |
0.0 |
0.0 |
| Reuters/Jefferies CRB fut. |
225.9 |
0.8 |
0.4 |
| Baltic Dry Index |
724.0 |
(20.0) |
(2.7) |
| UST yield 3m % |
0.02 |
(0.01) |
- |
| UST yield 10y % |
2.02 |
0.050 |
- |
| HIBOR 3m % |
0.38 |
0.001 |
- |
| USD LIBOR 3m % |
0.25 |
0.000 |
- |
Valuation Summary
- The stock is currently trading at 16.4x FY15E consensus PE, which is a 21% premium over the historical average of 13.5x.
- Yashili's stock price has outperformed HSCEI by 3% in the past month.
- The report believes the current valuation is rich due to the lack of near-term catalysts.
Key Data for Yashili International
| Metric |
Value |
| Ticker |
1230.HK |
| Price (8 Jan) |
HK$2.27 |
| 52W High |
HK$4.80 |
| 52W Low |
HK$2.07 |
| Market Cap (HK$bn) |
8.08 |
| Market Cap (US$bn) |
1.04 |
| Total Issued Share (bn) |
3.56 |
| Avg. 3mths Turnover (HK$mn) |
17.56 |
Shareholding Structure
| Holder |
% Ownership |
| Mengniu International |
68.05% |
| Zhang International |
8.53% |
| Free float |
23.42% |
Cash Flow (YE 31 Dec)
| Metric |
2013 |
| Profit before tax |
576.7 |
| Net cash from operating activities |
136.0 |
| Free cash flow |
-181.4 |
Conclusion
Yashili International is expected to benefit from new CEO leadership and potential collaboration with Danone, but its current valuation is considered high. The TMT sector saw several developments, including mobile commerce initiatives and funding for food delivery and fintech startups. The report highlights the importance of product portfolio streamlining and e-commerce expansion for Yashili in a competitive market.
