China Shengmu Organic Milk Limited, an investment holding company, produces and distributes raw milk and dairy products in the People's Republic of China and internationally. The company was founded in 2009 and is headquartered in Bayannur, the People's Republic of China.

China

China Shengmu Organic Milk Limited

Basic Materials

The company pays dividends irregularly. There have only been a few years with dividend payments in the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been low and below its peers. 

1432.HK reported revenue of CNY 3 126mn in the last 12 months, down 8% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 0% from FY23 to CNY 0.00. Market expects EPS to reach CNY 0.09 in FY25.

The stock has been growing steadily in the past six months, adding 3% in total. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 11ppts over past six months and grown 5ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 25.9% in the last 12 months, a decline from 26.6% in FY22. 

Historically, 1432.HK has reported weak net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled -2.1%, down from 2.5% in FY22. 

China Shengmu Organic Milk Limited reported a return on equity (RoE) of -1.6% in the last 12 months, down from -1.6% in FY23. The market consensus projects an RoE of -1.8% in FY24, again behind its peers. 

Another important profitability metric, return on assets (RoA), amounted to -0.8% in the last 12 months, an increase from -0.8% in FY23. The market analysts predict that RoA will be -0.9% in FY24, again weaker than its peers. 

In the last 12 months, the return on capital employed (RoCE) grew to -1.2%, below the peers. The consensus estimate for FY24 for RoCE is 14.4%, however, this time ahead of the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.1 in the past several years. This ratio implies a weak shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

1432.HK has very poor trading liquidity. It will take considerable time for the average private investor to sell a common position under normal market conditions. Liquidity may be unstable and becomes extremely unfavourable on the days with the lowest activity. However, under highly turbulent market conditions, the trading volume tends to improve significantly. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a very small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note robust profitability, adequate interest coverage, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, negligible return on capital, and excessive margin volatility.

In highly turbulent market conditions, 1432.HK is volatile. In other words, the stock will fall much more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be large. 

In normal market circumstances, 1432.HK is exceptionally volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change quite unpredictably. The stock's losses on its worst days (less than 1-5% of the time) will range from large to notable. 

From both historical and forecast perspectives, the stock is considerably underpriced compared to similar stocks. Specifically, the stock is undervalued on EV/EBITDA. 

China Shengmu Organic Milk Limited

HK$ 0.18

3

China Shengmu Organic Milk Limited

HK$ 0.18

3

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

HK$ 0.18

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