Bright Dairy Alert:1Q17result,strong earnings growth on expense control

光明乳业 600597

研究机构：德意志银行 分析师：Mark Yuan,Charlie Chen 撰写日期：2017-04-25

7.4% sales growth and 58.4% net profit growth in 1Q17.

Bright reported 1Q17 results with 7.4% sales growth to Rmb5,366mn and58.4% net profit growth to Rmb187mn. Sales is in line with our forecast, whilenet profit is 30% of our full year forecast, vs. 23%/21% in 1Q15/1Q16, trackingahead of the forecast.

Margin expanded on strong expense control.

Bright’s net margin expanded 110bps yoy in 1Q17, mainly driven by 600bpsdecline in selling expenses/sales, partly offset by 560bps decline in GPM due torising raw material cost.

2017 outlook: recovering sales and improved efficiency.

Bright’s 1Q17 sales growth is higher than management’s whole year guidanceof 6%, indicating industry demand recovery on less price competition. Weexpect the growth momentum to continue for the whole year.

As raw material cost turns into headw i n ds, we expect GPM to still be underpressure, but partly relieved by improving product mix and operating efficiencyin logistics and marketing expenses.

Maintaining Hold.

We expect Bright to maintain its profit margin in 2017 through tight costcontrol and further improvement in operating efficiency. Our target price isbased on a DCF model, factoring in 9.5% WACC (3.9% RFR, a 5.6% equitypremium, a 1.0 beta) and 2% TG. We are maintaining our Hold rating, giventhat the stock is trading at 23x 2017E P/E, compared to the peer average of20x, and there is limited upside. Upside risk: successful new product launches.

Downside risk: increasing competition.