[ET Net News Agency, 16 May 2018] China Modern Dairy's (CMD)(01117) major subsidiary
Modern Farming reported a net profit of RMB2.9m in 1Q versus a loss of RMB102m in 1Q 2017.
HSBC Global Research said the strong turnaround was largely driven by margin
improvement. During 1Q, raw milk output was up 7% y-o-y to 326,000 tons and external sales
volume was up 11.2% y-o-y to 293,000 tons. Raw milk price was around RMB3.8/kg in 1Q,
slightly lower than last year.
Management expects raw milk price to see a gradual recovery in the next few quarters and
believes its raw milk price for 2018 will be in a range of RMB3.85-3.90/kg. Besides the
raw milk price, cash flow and balance sheet should also be a key priority for CMD this
year. Management expects total capex to be around RMB1bn in 2018e, including RMB200m for
fixed assets and RMB800m related to the breeding cost.
During 1Q, Modern Farming reported net operating cash flow of RMB376m and net investing
cash flow of -RMB262m. As at end December-2017, CMD had total debt of RMB7.4bn and
management expects to reduce it to around RMB5bn in the next 3-5 years.
HSBC retained its "hold" call on CMD, with a target price of HK$1.57. (KL)