20171116-信达国际控股-澳优-01717.HK-More_positives_ahead_12页_1mb

Ausnutria (1717.HK) Summary

Core Content

Ausnutria is a leading paediatric milk formula company, primarily based in the Netherlands, and listed on the Hong Kong Exchange. The company has been approved for multiple infant formula series by the China Food and Drug Administration (CFDA), with its own brand infant formula driving significant sales and gross margin improvements. The company's strong performance in the first nine months of 2017, including a 44.2% year-over-year (yoy) revenue increase and a 58.9% yoy rise in EPS, has been attributed to the growing contribution of its own brand products, improved gross margin, and stringent cost control on marketing expenses.

Key Highlights

• Financial Performance:

  • Revenue in 9M17 increased by 44.2% yoy to RMB2,730 million.
  • EPS surged by 58.9% yoy to RMB220.7 million.
  • Net profit surpassed that of FY16.
  • Own brand cow and goat infant formula sales grew by 51.8% and 64.5% yoy respectively.
  • Gross margin (GM) improved by 197 bps yoy to ~41.4% in 9M17.

• Regulatory and Product Approval:

  • CFDA approved more than 500 infant formulae since August 2017.
  • Ausnutria has been approved for 5 series and 13 infant formulae, with the latest approval on November 14, 2017.
  • Kabrita Stage 1 was recently approved, and Stage 2 and 3 are expected soon.
  • Management expects 8-10 infant formula series to be approved by the end of 2017.

• Market Expansion:

  • The company is expanding its overseas presence, with sales from the US, South Africa, Korea, and Taiwan contributing ~13% to total sales in 9M17.
  • The company is applying for US FDA approval for its goat milk infant formula.
  • Acquired a 60% stake in Youluck, a Taiwan distributor, in March 2017, which has over 200 distributors, including maternity specialty stores and pharmacies.

• New Growth Engines:

  • The nutrition segment's loss narrowed significantly, with a segment loss of ~RMB2 million in 9M17, compared to ~RMB18 million and ~RMB35.6 million in previous periods.
  • This segment is expected to become a medium-term growth driver.
  • The company is expanding into organic infant formula, which has low penetration in China and ample room for growth.

• Valuation and Outlook:

  • The current price is HKD 4.99, with a target price (TP) raised to HKD 5.91.
  • The FY18E P/E ratio is at 12.3x, which is undemanding compared to peers, offering potential for re-rating.
  • The company is expected to maintain a GM of ~50% - 51% in FY18E, despite a slight dilution due to the private label segment.

Financial Forecast

Valuation Comparison

Revenue Breakdown

Strategic Acquisitions and Partnerships

• Nutrition Care: Acquired in 2016, contributing to the nutrition segment with products selling through online platforms.
• OzFarm: Acquired in 2017, supporting the company's expansion into the organic infant formula market.
• Westlands (New Zealand): Formed a joint venture with Westlands, enhancing the company's presence in the New Zealand market.

Conclusion

Ausnutria is well-positioned for continued growth with its strong own brand infant formula, regulatory approvals, and strategic expansion into overseas markets and organic products. Despite some challenges, such as a drop in GM for cow infant formula due to transportation costs and currency fluctuations, the company is expected to maintain a healthy GM range in FY18E. The company's financial performance has shown strong improvement, with a 12.3x P/E ratio offering potential for re-rating. With a focus on innovation and diversification, Ausnutria is set to benefit from the evolving infant formula market in China and internationally.