胜利方式的扩展.docx

Deutsche Bank ResearchAustralasia Australia New ZealandFood & BeverageAustralasia Australia New ZealandFood & BeverageIndustrya2 Milk and SynlaitDate16 February 2019Forecast ChangeExtending the winning formulaExtending the winning formulaExecuting well - reiterate Buy on both ATM / SMLIn this report, we use analysis of recent industry data points along with our own online data capture to calibrate our 1H19 ATM result expectation (20th Feb). We have also taken the opportunity to review our medium-term growth prospects for ATM following greater China regulatory certainty (late CY18) and to include a larger US opportunity via adult nutrition. Notwithstanding the strong price performances CYTD of ATM +14% and SML +7% (NZX 50G +5%), we reiterate our Buy ratings on both stocks. For ATM, our confidence is underpinned by strong China Infant performance and our additional valuation support coming from a larger US opportunity set. SML rationale is linked to our confidence in ATM's infant formula prospects, with the company still to execute any meaningful diversification 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, margin 33% flat on on pep. This implies a strong Nov / Dec monthly revenue run rate of +39% to NZ$120mn on pep and is cycling a strong base. It's also +30% vs. the avg. Jul - Oct-18 (4M19) run-rate of NZ$92mn. As always, a key judgement factor is the Infant inventory position, which could swing our IF rev. of +47% to NZ$500mn by +/- NZ$20mn. Other items: ANZ fresh rev. +12% to NZ$95mn and US/UK fresh rev, +57% to NZ$14mn (ex UK IF of NZ$15mn, both on pep).Adrian AllbonCraigs Investment PartnersResearch Analyst+64-9-969 1070Luke MillsCraigs Investment PartnersResearch Analyst+64-9-924-0508| Key ChangesCompanyTarget PriceRatingATM.NZ12.50 to 15.00-SML.NZ9.50 to 10.00-Source: Deutsche BankKey future health factors: (1) Kantar share, (2) China label %, and (3) US fresh updateIn our opinion, the current price is now well up to speed on China Infant (our DCF est. c.NZ$10), therefore investors will be looking for an underpin via further gains in Kantar share (DBe +0.2pp qoq to 5.8%) and a strong lift in China label sales mix (DBe +3pp hoh to 15% MAT) following increased distribution and with SMAR. To provide additional valuation support, we now need to see increased confidence on the US growth option, specifically further fresh distribution points (1Q19 was 9k), sell through KPIs (?) and/or future leverage options via an Adult Nutrition product set (similar to Freedom Foods portfolio)?. We may be overly hopeful 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 Nutrition roll-out could be worth c.NZ$1.50 per share and we estimate US Fresh is c.NZ$1 per share. Southeast Asia is the other key growth factor (DCF c.NZ$1.50), but, asDeutsche Bank AG/SydneyThis research has been prepared in association with Craigs Investment Partners LDistributed on: 15/02/2019 20:27:10 GMT Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should considerFigure 17: Online and MBS are the key growth channels and at the expense of modern trade.©n_E>=Ea>)一eqs -3UUELP E_nE-o二 UEC-20132018Gastro-IntestinalDisordersAllergy riskCow s MilkAllergyPre-term birthFigure 18: .while a recent Danone presentation highlights the prevalence of allergies but current low penetration rates+50%+10%+30%30%(Value Growth by arealSource: EuromonitorSource: Danone investor presentation (Oct-18) Below we reiterate our previous a2 category view, where we model it reaches 15% of the overall market by FY23E, with competition (so far only Nestle of note, refer our summary below) so far proving complementary rather than destroying the value premium. This is a similar play book to that being experienced in the organic category, which is further advanced and currently has 4-5 competing brands but is still growing double digit.Figure 19: We continue to expect the a2 category to reach 15% of the overall market by FY23.o o 2 1 (£ ssn) u- BUtoFY16 FY17 FY18E FY16E FY20E FY21E FY22E ； FY23E Rest of marketI a2 on»y ca:egoryWe forecast the a2 only category to be 15% of the overall market by FY23 (FY18E 6%)cqMsn $«6>%FY20E FY21E FY22EWe forecast ATM's sole sha re of the a2 only category to drop to 68% by FY23 ATMa2 category competitorsFigure 20: .with ATM remaining the market leader within the categoryFY23EFY17Source:Deutsche Bank estimatesSource:Deutsche Bank estimatesSource: Deutsche Bank estimatesFigure 21: Our analysis highlights only Nestle currently competing in the a2 only infant category, both daigou and MBS channelsNAN A2NAN A2Launched Oct-18A2 PlatinumS26 AtwoLaunched Oct-18Wyeth llluma A2Launched Mar-18160 CNYNestleSales channel pricing (Stage 3, CNY per 900g) 'A/NZ grocery*Taobao200-210 CNY (ex. tax)220-230 CNY (ex. tax)300 - 388 CNY (ex. tax)220 - 230 CNY (ex. tax)Tmall Global263 CNY256 CNY：X257 CNYTmall XLJX410 CNY11428 CNYTaobao margin (purchased ANZ grocery)70 CNY65 CNY;M185 CNY135 CNY140 CNY»AUD / CNY = 4.80. NZD / CNY = 4.57Source: Coles, Chemist Warehouse, Tmall Global, Tmall , Deutsche Bank estimatesSuper sizing the US opportunity for adult nutrition Our key US fresh assumptions are Euromonitor based at a starting retail value of US$13bn growing at c.2% pa. Within this market we assume the speciality category continue to take share from a declining commodity mass-market. Our LR anchor is ATM revenues growing to NZ$450mn, 3% of total market 10%, of specialty share and generating a EBITDA margin of 15%. This LR forecast after including an initial period of heavy marketing investment generating c.NZ$1 of DCFvalue. We have also now explicitly modelled a US adult nutrition roll-out, based on a value added product set similar to what Freedom Foods currently has across everyday, sports and high value ingredients. To us this would be a logical strategy for management to leverage its rising brand awareness being established via its lower returning fresh platform.Figure 22: Our revised US / UK revenue estimate is now +79% to NZ$516mnFigure 23: Reflecting the larger opportunity within wider categories if successful in leveraging its fresh platform00 6 $CE -SZN) anuo>oCEo oo o5 4$o o o0coS2 1$ $FY18 FY19E FY20E FY21E FY22E FY23EUS / UK previous6$1 cq .ssn) n_E> =«azwasww$8$4$0US/UK revisedSource: Company data, Deutsche Bank estimatesUS fresh CY1824.US fresh specialty (DBe) CY23Source: Euromonitor, Deutsche Bank estimatese1Sports nutritionOur key US adult nutrition assumptions are Euromonitor based at a starting retail value of US$10bn growing at c.8% pa. Our LR anchor is ATM revenues growing to NZ$710mn, or 5% of the total market and generating a EBITDA margin of 35%. This forecast after a period of initial marketing investment lifts our long-run group earnings by c.10% pa and generates c.+NZ$1.50 of DCF value.Our revised ATM and SML 5-year operating outlookOur ATM 5-year operating outlookYE 30 JuneUnitsFY17FY18FY19EFY20EFY21EFY22EFY23E 5-yr CAGRANZNZ$, mn4396578939229128727593%ChinaNZ$, mn8923433846258470893832%UKfUSNZ$, mn22326111920131851674%Southeast AsiaNZ$, mn-645113183289169%RevenueNZ$, mn5509231,2971,5471,8102,0812,50222%growth56%68%41%19%17%15%20%Infant formulaNZ$, mn3947241,0591,2351,3981,5441,75619%Fresh fadult nutritionNZ$, mn15619823831341253774730% Infant formula72%79%82%80%77%74%70% Fresh f adult nutrition28%21%18%20%23%26%30%Operating EBITDANZ$, mn14128340547254462475622% sales%26%31%31%31%30%30%30%growth157%101%43%16%15%15%21%-FreshNZ$, mn5231528477111739%-China InfantNZ$, mn16029042747050153458515%-SEA InfantNZ$, mn-2164064101169%-CorporateNZ$, mn(24)(33)(39)(41)(43)(45)(47)8%NPATNZ$, mn9119628133038544353722%growth198%116%44%17%17%15%21%CashNZ$, mn1213404497591,0301,3421,72538%Key China Infant AssumptionsVolumeMT16.128.539.043.846.848.951.913%growth71%77%37%12%7%4%6%Net revenue per canNZ$22.022.924.324.524.725.125.42%growth7%4%6%0%1%1%1% China label7%12%17%25%30%32%33%Implied China share*3.5%5.8%7.7%9.0%9.7%10.1%10.4%-Online (incld daigou)12.1%17.5%19.4%19.1%18.3%17.8%18.1%-MBS (China label)1.0%2.7%4.7%7.3%9.1%9.8%10.0%Derived from using Euromonitor overall market estimates* * Implied channel marketing spend, which explains most of the variance between gross and net revenue per canSource: Company data, Deutsche Bank estimates* SML earning changes - our overall I FC volume track is unchanged, with our stronger ATM volumes for FY19 / 20 replacing a weaker demand from the other IFC brands, mainlyMunchkin.Figure 24: Our SML 5-year operating outlookSource: Company data, Deutsche Bank estimatesYE 31 JulyUnitsFY17FY18FY19EFY20EFY21EFY22EFY23E5-yr CAGRIngredients (WMP, SMP & AMF)MT116,80090,02290,000100,00099,00089,00081,000-2%Base nutritional powder (IFB)MT5,3184,7897,00015,00025,00030,00035,00049%Finished infant formula (IFC)MT18,77635,58043,00053,00064,00070,00073,00015%Fresh milk f creamMT11,60034,30057,00069,40069,400Total volume (ex. fresh)MT140,894130,391140,000168,000188,000189,000189,0008%Spray dry utilisation%102%94%91%87%94%95%95%Canning line utilisation (IFC)%59%58%61%76%91%67%70%Milk collectedkgMS, mn65646580858585Milk processedkg MS, mn65626478858381Milk sold at costkgMS, mn1.8-2.00.42.14.4Base milk priceNZ$fkgMS6.156.656.256.506.656.636.60Powders and creamNZ$fMT6881,0651,0929891,0441,0921,089Consumer packagedNZ$fMT723777800825850850850Specialty ingredientsNZ$fMT50,559285,757285,757285,757285,757285,757285,757Fresh milk f creamNZ$fMT _-300325350400600GM per MTNZ$fMT7811,3111,2961,1281,1331,1641,2258%Powders and creamNZ$mn97.4134.4152.9166.2196.2206.4205.8Consumer packagedNZ$mn13.827.634.443.754.459.562.1Specialty ingredientsNZ$mn0.84.45.77.17.17.17.1Fresh milk f creamNZ$mn一-3.511.120.027.841.6Gross marginNZ$mn112.1166.5196.5228.2277.7300.8316.722%Sales and distributionNZ$mn(16.6)(20.6)(21.8)(29.8)(34.1)(37.9)(44.1)Administration and operatingNZ$mn(28.0)(33.6)(41.2)(39.6)(46.6)(49.3)(56.1)Total operating expensesNZ$mn(44.6)(54.2)(63.1)(69.4)(80.7)(87.3)(100.2)14%EBITDANZ$mn88.8138.6160.4192.6233.7251.0253.723%DepreciationNZ$mn(23.0)(25.6)(26.9)(33.7)(36.7)(37.5)(37.2)EBITNZ$mn65.8113.1133.5158.8197.0213.6216.527%Net Financing costsNZ$mn(12.2)(93)(10.6)(21.4)(13(7.1)2.8Profit before taxNZ$mn53.6103.8122.8137.4183.4206.5219.331%Income taxNZ$mn(15.3)(29.3)(35.0)(38.5)(51.4)(57.8)(61.4)NPATNZ$mn38.274.687.898.9132.0148.7157.931%EBIT growth%8%72%18%19%24%8%1%EBIT per MTNZ$4678679539451,0481,1301,145EBIT margin%9%13%14%14%15%15%15%Capex5913831546803030Net debt (cash)8211433525318749(100)ROCE (pre-tax)13.9%22.3%19.2%18.6%22.0%22.8%22.9%ATM Investment ThesisOutlookATM has successfully created a premium dairy nutrition and infant formula brand, leveraging the digestive benefits of the a2 only beta casein in its dairy products and with a capital light model. To date ATM has established a premium fresh milk business in Australia and a fast growing infant formula business in China. The other key growth options are US fresh milk and SE Asia infant formula. We rate ATM a Buy reflecting valuation upside and with Chinese regulatory uncertainties / market disruption in part reflected in our estimates.ValuationOur 12-month price target is based on roll-forward of our spot DCF by the cost of equity less dividend. Our DCF valuation assumes an average WACC of 8.6%, RFR4.5 %, TGR 3%, equity beta 0.9x, D/E 25%). TGR at 3% to include ATM's broader global nutritional portfolio, which is not explicitly captured in our forecast period.Key downside risk for ATM include: Food safety: any issues arising from human error and/or contamination and which are not picked up in final testing could result in loss of key customers and/or China regulatory registration. Scientific risk. ATM's key and branded point of differentiation is premised on its a2 only beta casein providing superior digestive benefits when compared to regular cow's milk, which also contains the a1 beta casein. Competition: With some of key ATM patents now expired it is more likely further competition will look to enter ATM's key growth market, China infant formula.Single supply risk/interruption. ATM's infant formula is currently manufactured by sole manufacturing partner Synlait Milk (SML), which operates from a single site In New Zealand. This will change over time as SML extends its asset capability to a second site and as ATM's agreement with Fonterra starts for South East Asia. Changes to regulations/market access. Any adverse changes to China's infant formula market access could materially affect ATM earnings. Execution of growth options. Key options include expanding into China offline for infant formula, launching South East Asia infant formula and US fresh milk.SML Investment ThesisOutlookSML is a capital driven B2B dairy processing exposure, located in Canterbury, New Zealand. Its growth strategy is focused on optimising the margin available from converting raw and grass-fed NZ milk supply into fully finished/canned infant formula and