中国奶制品行业报告.pdf

China Dairy Sector Report II Will IMF sector enter a price deflation cycle? We forecast Chinas IMF sector growth to decelerate in the next decade We forecast Chinas IMF sector to record a CAGR of 5% during 2013-20E, representing a significant slowdown from 23% CAGR during 2007-13. Our conservative view is mainly due to 1) implementation of stricter regulation since 2014, which will help to remove unjustified price premium; 2) higher-than-expected price elasticity of demand; 3) downward pricing pressures resulted from ramp-up of online sales; 4) potential over- supply risks resulted from aggressive capacity expansion of local players from 2015. Price elasticity of demand can be higher than expected Chinas IMF prices appear inflated while value consumption per capita suggests limited room to grow, given Chinese consumers disposable income compared with other countries. Furthermore, consumers of toddler milk formula (for babies over 1 year old), which accounts for 46% of total IMF consumption volume, are likely to shift towards liquid milk, given its lower prices whilst similar functionality. The gloomy income expectation of consumers, given overall weak economy, can make them further trade down to alternative cheaper food products from toddler milk formula. Online sales proliferation urges expenses optimization of domestic players After the 2008 melamine scandal, domestic IMF players have been spending hefty expenses in offline channels to gain shares from foreign brands. The high mark-up by distributors and retailers results in substantial price discount of online versus offline sales, leading to proliferation of online sales. Our channel checks suggest decline in traditional channels recently. Domestic players are urged to shift expenses employment towards brand building from channel expenses, in our