德银-澳大利亚-食品与饮料行业-胜利方式的扩展-2019.2.16-25页.pdf

16 February 2019Food&Beveragea2 Milk and SynlaitFood&BeverageForecast ChangeAustralasiaAustraliaNew ZealandIndustrya2 Milk and SynlaitDate16 February 2019Deutsche BankResearchExtending the winning formulaExecuting well-reiterate Buy on both ATM/SMLIn this report,we use analysis of recent industry data points along with our ownonline data capture to calibrate our 1H19 ATM result expectation(20th Feb).Wehave also taken the opportunity to review our medium-term growth prospectsfor ATM following greater China regulatory certainty(late CY18)and to includea larger US opportunity via adult nutrition.Notwithstanding the strong priceperformances CYTD of ATM+14%and SML+7%(NZX 50G+5%),we reiterateour Buy ratings on both stocks.For ATM,our confidence is underpinned bystrong China Infant performance and our additional valuation support comingfrom a larger US opportunity set.SML rationale is linked to our confidence inATMs infant formula prospects,with the company still to execute any meaningfuldiversification strategy with its other IFC customers and categories.Strong daigou finish to ATM 1H19We expect revenue+40%to NZ$609mn and EBITDA+40%to NZ$200mn,margin33%flat on on pcp.This implies a strong Nov/Dec monthly revenue run rateof+39%to NZ$120mn on pcp and is cycling a strong base.Its also+30%vs.the avg.Jul Oct-18(4M19)run-rate of NZ$92mn.As always,a key judgementfactor is the Infant inventory position,which could swing our IF rev.of+47%toNZ$500mn by+/-NZ$20mn.Other items:ANZ fresh rev.+12%to NZ$95mn andUS/UK fresh rev.+57%to NZ$14mn(ex UK IF of NZ$15mn,both on pcp).Key future health factors:(1)Kantar share,(2)China label%,and(3)US freshupdateIn our opinion,the current price is now well up to speed on China Infant(ourDCF est.c.NZ$10),therefore investors will be looking for an underpin via furthergains in Kantar share(DBe+0.2pp qoq to 5.8%)and a strong lift in China labelsales mix(DBe+3pp hoh to 15%MAT)following increased distribution and withSMAR.To provide additional valuation support,we now need to see increasedconfidence on the US growth option,specifically further fresh distribution points(1Q19 was 9k),sell through KPIs(?)and/or future leverage options via an AdultNutrition product set(similar to Freedom Foods portfolio)?.We may be overlyhopeful on the latter points which may be saved for the inaugural investor day.In our revised group spot DCF valuation of c.NZ$14,we think an Adult Nutritionroll-out could be worth c.NZ$1.50 per share and we estimate US Fresh is c.NZ$1per share.Southeast Asia is the other key growth factor(DCF c.NZ$1.50),but,asAdrian AllbonCraigs Investment PartnersResearch Analyst+64-9-969 1070Luke MillsCraigs Investment PartnersResearch Analyst+64-9-924-0508Key ChangesCompanyTarget PriceRatingATM.NZ12.50 to 15.00-SML.NZ9.50 to 10.00-Source:Deutsche BankDeutsche Bank AG/SydneyThis research has been prepared in association with Craigs Investment Partners Limited.Deutsche Bank does and seeks to do business with companies covered in its research reports.Thus,investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should considerthis report as only a single factor in making their investment decision.DISCLOSURES AND ANALYST CERTIFICATIONSARE LOCATED IN APPENDIX 1.MCI(P)091/04/2018.Distributed on:15/02/2019 20:27:10 GMT7T2se3r0Ot6kwoPa16 February 2019Food&Beveragea2 Milk and Synlaitoutlined in recent notes,we have already sliced our initial bullish expectation anddont expect any meaningful revenue until FY20.Target price changes-ATM+20%to NZ$15 and SML+5%to NZ$10We have lifted our ATM growth forecasts to reflect three key factors:(1)greaterChina regulatory certainty,(2)higher US fresh revenues to reflect the growingdistribution points and strong ATM marketing investment and(3)explicitlymodelling a US adult nutrition opportunity(logical leverage point to US fresh).Asa result of our earnings upgrade(FY19-23E NPAT c.6%pa,longer term+10%pa(US adult nutrition)plus time value of money,our DCF-based TP is now+20%to NZ$15.0(avg.WACC 8.6%,RFR 4.5%and TGR 3%).Key down risks:(1)foodquality/safety issue,(2)regulatory disruption,and/or(3)mgmt.execution ofgrowth options(refer report for further details).Our SML TP+5%to NZ$10(avg.WACC 8.4%,RFR 4.5%and TGR 2%)reflectstime value of money.Our earnings track is unchanged with higher near term ATMvolume offset by weaker other IFC brand performance,mainly Munchkin.Keydown risks:(1)regulatory changes,(2)food safety incident and/or(3)executionof capital expansion plans(refer report for further details).Page 2Deutsche Bank AG/Sydney16 February 2019Food&Beveragea2 Milk and SynlaitStrong daigou finish to 1H19Key 1H19 group metricsWe are expecting total 1H19 revenue of NZ$609mn and+40%on pcp.The key swing factors are within the infant business and specificallyinventory build/sell down,which our analysis of recent port datasuggests is+/-c.NZ$20mn and results in a revenue range between NZ$589mn to NZ$629mn,or+35%to 45%growth on pcp.Moreover,our 1H sales estimate implies a strong Nov/Dec monthlyrevenue run rate of+39%on pcp to NZ$120mn and relative to Jul Oct-18(4M19)run rate of NZ$92mn and+41%on pcp.Divisionally,we are expecting:(1)infant formula revenue to print+47%on pcp to+NZ$500mn and underpinned by our analysis of recent portdata prints and daily online web scraping analysis(detailed in sectionsbelow),(2)ANZ fresh sales+12%on pcp to NZ$95mn,and(3)US/UK+57%on pcp to NZ$13.5mn(note excluding DBe NZ$15mn of UK infantsales).Our other key areas of focus are:(1)MBS roll-out and through its Chinalabel%of total IF sales(DBe+3pp on FY18 to 15%),(2)China Kantarmarket share(DBe+0.2pp on 1Q19 MAT to 5.8%),and(3)U.S.freshbusiness KPIS(e.g.distribution footprint growth and sales velocity)At the EBITDA line we are expecting NZ$200mn,+40%on pcp andmargin broadly flat on pcp at 33%.Strong infant formula momentum through Nov/Dec-18NZ Stats port data indicates a lift in infant formula volumes throughNov/Dec-18 our analysis of Lyttleton port data suggests that followingits 4M19 sales update,infant momentum looks to have remained verystrong through Nov/Dec-18 and with total stage 1 3 volumes lifting+79%on pcp to 8.2k MT and to lift the total 1H19 to 17.8k MT and+30%on pcp(data adjusted for revenue recognition timing).Moreover,on an underlying country mix basis the Nov/Dec-18 port datahighlights:(1)Australian volumes remain very strong,+137%on pcp to4k MT and we expect this reflects strong corporate daigou demand givenon-going grocery/pharmacy stock-out issues,and(2)China/Hong Kongvolumes also tracking very strong and+43%on pcp to 4.1k MT.Deutsche Bank AG/SydneyPage 316 February 2019Food&Beveragea2 Milk and SynlaitFigure 1:NZ Stats data indicates strong IF momentumthrough Nov/Dec-18.Figure 201,0002,0003,0004,0005,000Apr-16Jun-16Aug-16Oct-16Dec-16Feb-17Apr-17Jun-17Aug-17Oct-17Dec-17Feb-18Apr-18Jun-18Aug-18Oct-18Dec-18Lyttleton port stage 1-3 volume(MT)AustraliaChinaHong KongDunsandel capacity3-mth rolling avg.0.0k2.0k4.0k6.0k8.0k10.0k12.0k1Q172Q173Q174Q171Q182Q183Q184Q181Q192Q19Lyttleton port data stages 1-3(MT)AustraliaChinaHong KongSource:NZ StatsSource:NZ StatsOur online daily analysis of individual daigou(via Taobao)also suggestsstrong trading through Nov/Dec-18,however that being said inventorylevels look to have remained low following the label transition periodthrough ATMs 4Q18.Taking into consideration the strong Australianport volumes,along with our analysis of Australian grocery/pharmacywhich continues to show Coles,WOW and Chemist Warehouse remainshort of stock,we suspect:(1)the majority of ATM product has beenthrough corporate daigou sales channels(e.g.not captured in our Taobaoanalysis),and(2)potentially influenced by recent e-commerce tax andbusiness registration requirements set to be enforced from 1 April-19.Figure 3:.given that our daily online analysis ofindividual daigou indicates retail stock levels remaintight.Figure 40k5k10k15k20k25k30k0k100k200k300k400kSep-17Oct-17Nov-17Dec-17Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19Feb-19Taobao transactionsStage 1Stage 2Stage 3Avg.daily inv.(rhs)10%20%30%40%50%60%70%80%90%100%May-17Jun-17Jul-17Aug-17Sep-17Oct-17Nov-17Dec-17Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19Individual daigou margin(10-day rolling avg.)Stage 2Stage 312-month avg.12-month avg.Stock-outissues Market long supply&label transitionMargin recoverySource:Taobao,Deutsche Bank estimatesSource:Taobao,Coles,Deutsche Bank estimatesTotal 1H19 infant formula sales growth between+41 to 52%on pcpWe expect ATM should deliver 1H infant formula revenue between NZ$480-$520mn,or+41 to 52%growth on pcp and+47%at the midpoint key pointsbelow:We estimate ATMs total infant formula volume over the 1H19 was 18.5kMT and reflecting:(1)NZ Stats export data for stage 1 3 product(adj.for ATM revenue recognition timing)which indicates 17.5k MT wasexported through Lyttleton,(2)our assumption that stage 4 product mixPage 4Deutsche Bank AG/Sydney16 February 2019Food&Beveragea2 Milk and Synlaitaccounts for 5%of ATMs total mix(0.9k MT),(3)net inventory sell downof+0.6k MT,but partly offset by(4)0.5k MT of Munchkin stage 1 3volume also captured in the Lyttleton port export data.Our average price per can proxy indicates 1H pricing was NZ$24.3 and+6.4%on FY18,which we note is ahead of our expectation and givenATMs flagged wholesale price increase for stage 3/4 product(+7%and+4%,respectively)implies a stage-weighted increase of only+4%(e.g.stages 1 4 split 20%/20%/55%/5%,respectively).Figure 5:We estimate ATMs 1H infant volume was18.5k MTFigure 6:Our net revenue per can proxy is NZ$24.3 and+6.4%on FY184.1 k6.4 k8.3 k11.1 k15.9 k18.5 k0.0 k5.0 k10.0 k15.0 k20.0 k25.0 kJul-18Aug-18Sep-18Oct-18Nov-18Dec-18Cumulative infant formula volume(MT)Lyttleton Port Stages 1-3(ATM,DBe)ATM Stage 4(DBe 5%mix)Inventory$22.8$24.3$5$10$15$20$25$30Jul-16Sep-16Nov-16Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Lyttleton Port implied price per can(NZ$)Cost per can proxyFY avg.cost per canNet rev per can proxyFY avg.rev per canSource:NZ Stats,Deutsche Bank estimatesSource:NZ Stats,Deutsche Bank estimatesOur analysis suggest total infant revenue between NZ$480-$520mn based on our analysis above,we expect ATM should report infantformula revenue of NZ$500mn at the midpoint or 47%growth on pcp.That being said,we see three key swing factors(DBe+/-c.NZ$20mn):(1)inventory build or sell down,with our midpoint estimate assuming+0.6k MT rebuild vs.ATMs 4M19 update which implied(vs.port data)an inventory draw down of c.-1k MT(or+NZ$29mn revenue refer chartbelow),(2)stage 4 product mix(DBe 5%),and(3)Munchkin volumesincluded in NZ Stats data.Figure 7:We estimate 4M19 IF sales were NZ$300mnand supported by an inventory sell downFigure 8:We expect 1H infant sales of NZ$500mn,+47%on pcp and reflecting a partial inventory rebuild271+29300+60+8368$200$240$280$320$360$400Port datarun-rateSales frominventoryTotal IFANZ freshUS/UKTotal revenueATM 4M FY19 revenue(NZ$,mn)We estimate 4M19 infant sales was NZ$300mn480271+209480$200$300$400$500$600$7004M19 IF salesestimateNov/Dec portdataImplied 1H19DBe inventorymovementDBe 1H19 IF salesInfant formula revenue(NZ$,mn)Port dataIF sales from inventory/additional stage 4 productInventory buildWe expect inventory mvmt.to be the key swing factor520300500Source:Company data,Deutsche Bank estimatesSource:Deutsche Bank estimatesWe expect MBS/China label to lift hoh+3pp to 15%of total IF salesDeutsche Bank AG/SydneyPage 516 February 2019Food&Beveragea2 Milk and SynlaitOur analysis of Lyttleton port data on a country mix basis,shows totalChina stage 1 3 volume for the 1H was 5.5k MT,or c.31%of totalvolume.However,given last reported(FY18)China label revenue wasonly 12%of total,we suspect that these volumes reflect a combinationof both CBEC(English label)and MBS(China label)product.In order to indicatively split the two sales channels,we assume Chinavolume with an average price per can NZ$25 reflects MBS volume,withour expectation of a higher gross revenue per can sell in price for thesales channel(see our Jul-18 note titled Brand New Thinking,note weexpect net revenue broadly flat across sales channels and as previouslyguided by management).On this basis,our analysis suggests that 3k MTwas MBS,or 18%of total volume over the 1H.That being said,we expect 1H19 reported China label%of saleswill be lower and c.15%and due to:(1)our expectation of timingdifferences between port data and ATMs revenue recognition frommainland distributors,and(2)our 4M19 analysis suggested that Chinalabel%was c.14-14.5%(based on managements comments that 4MYTD China label sales was+75%on pcp)and vs.port data which implied4M19 was c.17%.Figure 9:Our indicative split of NZ Stats infant formuladata by sales channelFigure 10:We expect China label(MBS)to lift+3pp to15%of total IF sales17%18%3.6k5.5k7.1k9.5k14.3k17.0k0.0k4.0k8.0k12.0k16.0k20.0k24.0kJul-18Aug-18Sep-18Oct-18Nov-18Dec-18Cumulative stage 1-3 volume(MT)English label proxyChina label proxy1.5k3.7k6.7k10.0k12.0k4%8%12%12%14%15%0k4k8k12k16k20k0%4%8%12%16%20%2H161H172H171H182H184M191H19MBS store footprint(rhs)%China label(lhs)%China label(DBe,lhs)Source:NZ Stats,Deutsche Bank estimatesSource:Company data,Deutsche Bank estimatesUS/UK:key focus US distribution roll-out/sales velocityOur analysis of ATMs FY18 reported US/UK revenue suggests thatexcluding infant formula sales to exporters(NZ$15mn),US/UK freshsales was NZ$17.4mn.Moreover,we expect the majority of this wasskewed toward the US given flagged challenging market conditions.Interestingly,assuming ATM would only sell IF into the UK at broadlysimilar margins to ANZ/China(given stock shortages at the time),thissuggests that within its reported NZ$27mn US/UK segmental EBITDAloss was a c.+NZ$6mn benefit from infant formula sales.Moreover,this implies that ATMs investment/operating cost base was NZ$34mnacross its US/UK fresh platforms,and assuming its UK fresh businesswas break even(difficulty to calibrate),this would sit against its USbusiness.Page 6Deutsche Bank AG/Sydney16 February 2019Food&Beveragea2 Milk and SynlaitFigure 11:Our analysis of US/UK underlying salesindicates NZ$17mn of fresh sales across bothcountries.Figure 12:.and interestingly,from an EBITDAperspective,highlights c.NZ$-34mn of fresh cost whichwe assume is mostly US-focused4.013.417.415.032.4$0$5$10$15$20$25$30$35$40DBe UK freshDBe US freshReported US/UKfreshReported UK IFrevenueFY18 US/UK salesFY18 US/UK sales contribution(NZ$,mn)DBe indicative split+6-28-34-$30-$20-$10$0$10$20$30IF contribution(DBe,40%margin)Fresh business impliedEBITDAReported US/UK EBITDAFY18 US/Uk EBITDA contribution(NZ$,mn)Total implied fresh investment of NZ$34mn below GM lineSource:Company data,Deutsche Bank estimatesSource:Company data,Deutsche Bank estimatesLooking into the 1H result and on a hoh run-rate basis,we expect totalUS/UK r