Value Investment COFCO Jiakang vs BYD, Baiyunshan vs Wuliangye
Eight years ago, I took a heavy position in BYD. At that time, BYD’s stock price was 30 yuan, with a market value of 100 billion yuan. As the leader of electric vehicles at that time, it can be seen with a telescope that the vigorous promotion of electric vehicles in 2024 is the general trend, because electric vehicles have many advantages over fuel vehicles, clean energy, energy saving, oil energy will be exhausted sooner or later, electric vehicles will save money, etc. , and BYD started as a battery, and the battery is the core technical part of an electric vehicle. BYD is the leader in new energy and electric vehicles. In the future, with the rise of my country’s great power, the manufacturing industry will inevitably rise. The automobile manufacturing industry, especially the electric vehicle manufacturing, will become a pillar industry. It is a high probability event that the market value is comparable to that of Toyota.
Despite these hard-core logics, despite these strong logics, BYD’s financial statements in that year were really ugly. Profits plummeted by 95%, and there was basically no dividend. Electric vehicles were struggling to force the manufacturing industry, with low gross profit margins, fierce competition, and low thresholds. The wheel business is not a good business. The main thing is that the stock price has not risen for a long time, and it has fallen to one-third of the high point.
However, in contrast to the Minsheng Bank at that time, its profits not only grew steadily, but it was also the only private bank in the bank with a wolf-like culture. The president said at the annual meeting that we are embarrassed to make money. A money-printing enterprise, With a market value of 200 billion yuan, a yearly profit of nearly 50 billion yuan, only a 4x price-earnings ratio and a 7% dividend rate, what an incredible financial report, and what a cheap valuation, Buffett has repeatedly bought a bank with a 5x price-earnings ratio. . . . . . Therefore, after repeated thinking, BYD was replaced by Minsheng Bank. Then today it missed the 10-fold increase in BYD’s market value.
Today, history is strikingly similar. COFCO Jiajiakang lost nearly 1 billion in profit due to a hedging mistake this year. In the first half of the year, the company misjudged the pork market in the second half of the year and reduced the scale of breeding and slaughtering, resulting in a high probability that the slaughtering volume will not reach 5 million this year, which should have been profitable. It was a good year, but the management was forced to make a loss or even a loss. When I think about it, I am not only disappointed, but also a little angry. The stock price also plummeted, from a high of more than 6 yuan to more than 2 yuan. How similar to BYD back then. Shareholders, especially the Beishui blockbuster, were sold, and Xueqiu was disappointed and pessimistic.
Where to go?
COFCO has a long history as a consumer brand. In that year, Fulinmen was acquired, and it became the second largest and the three largest brands of small grain and oil packaging. second only to Arowana. In the future, it can be foreseen that after the small packages of grain, rice, flour, and oil, small packages of pork will become a major trend. 80% of the foods on foreign tables have brands. 80% of our foods have no brands, and so does pork. Chinese people consume half of the world’s pork, 700 million heads per year, and this will not be reduced due to the downturn in the general environment. Therefore, COFCO Group, which has successfully operated Mengniu Dairy and grafted the endangered Mengniu to upstream cattle farms, has also successfully operated Jiuguijiu, and created Jiang Guojin, which has 20 times the stock in 5 years, whether it can make COFCO Jiajiakang successful. Second only to the development of Shuanghui in China, even surpassing Shuanghui’s pork consumer goods? Chifeng and Jilin slaughterhouses have been put into operation one after another, Wuhan has built 1 million production capacity, and the construction of long divisions in South China, continuous hedging of feed and hog futures, annual growth of more than 20% for small packaged meat, and more than 60% growth for fresh meat , and the 200% annual growth of flaxseed small-packed meat, can this baby enterprise in the pork consumption industry of 2 trillion yuan grow into a young and prime-aged industry giant in the future? I think the probability is still 7-8%. Of course, this year’s report is ugly, and futures losses have become a fact, but it will not be a devastating blow to the company. After all, the futures made more than 1 billion yuan last year. From a general perspective, in the future, small packaged pork, the pork industry, from pig raising, to slaughtering, to chilled meat, to meat products, COFCO Jiajiakang, which integrates upstream and downstream, earns 700 yuan per pig, and produces 10 million pigs per year+ A profit of 8 billion can be achieved, and a 25 times price-earnings ratio for consumer stocks is a market value of 200 billion, which is 20 times larger than the current market value of 9.3 billion. It’s just that in the past ten years, similar to the past ten years of BYD, the stock price may not rise for a long time, and it will fluctuate around 2 yuan. Can you hold it?
Some things can be seen clearly in the long-term, but the short-term and long-term will be very different. For example, in the past few days, I saw the Bank of Jiangsu again. The price-earnings ratio was less than 5 times, and the profit increased by 30% last year. Various indicators are very good. Is it going to be exchanged? Like when BYD changed to Minsheng Bank? At present, Bank of Jiangsu has a profit of 25 billion yuan and a market value of 110 billion yuan. In 10 years, can Bank of Jiangsu make a profit of 75 billion yuan and achieve a market value of 1 trillion yuan? How high is the probability? Is it the high probability that the market value of Bank of Jiangsu will increase tenfold in trillions, or is the market value of COFCO Jiajiakang 100 billion yuan high? I think there is a certain probability, it depends on individual betting and gaming.
Another case is Baiyun Mountain and Wuliangye. The first time I bought Wuliangye was 80 billion in market value, 20 billion in cash, 60 billion in market value, and an annual profit of about 10 billion (at that time, the profit had not fallen to 7 billion). Therefore, it was considered to be 8 times the price-earnings ratio at that time, and actually paid back in 6 years. Unexpectedly, in the annual report that year, Wuliangye’s profit fell to 7 billion, and the price-earnings ratio instantly increased from 8 times to 12 times, so the stock price further fell to 14 yuan, with a minimum market value of 50 billion yuan. About 7 times earnings. How similar to today’s Baiyun Mountain. Baiyunshan Hong Kong stocks have a price-earnings ratio of 7 times, but the interim report deducts non-profits, and the revenue of Wanglaoji Great Health has declined. The financial report is not very optimistic. Therefore, Wuliangye, which faced a double decline in profit and stock price, on the other hand, was very optimistic about the growth of the annual report of Industrial Bank, and the price-earnings ratio was only 4 times. How similar is it to today’s Bank of Chengdu, Bank of Jiangsu, and Bank of Wuxi. So I replaced Wuliangye with a profit decline of 7 times the price-earnings ratio of Industrial Bank with a profit increase of 4 times the price-earnings ratio. Similar to replacing Baiyun Mountain today with Bank of Jiangsu or Industrial Bank, Bank of Nanjing.
Today’s Baiyun Mountain is very similar to Wuliangye back then. The centralized procurement of chemicals, the company’s management chaos is very similar to that of Wuliangye. Market funds are reluctant to buy these two targets. Trading and its downturn. Market funds have been confused. But in the long run, the pharmaceutical industry and the big consumer industry are hotbeds of big bull stocks. 18 of the 20 stocks with the highest returns in the past 50 years in the United States are generated by the pharmaceutical and big consumer industries. As a leader in the pharmaceutical industry and the only company under GPHL to enter the world’s top 500, Baiyunshan has a stronger long-term logic. In the next three years, its profits will triple to more than 10 billion yuan, and its market value will be 300 billion yuan. There is a 90% probability or even higher. of. The temporary slump in reporting is partly due to the pandemic. But I believe that in the future, there will be a way to restore normalcy and defeat the epidemic.
This is the short-term logic versus long-term logic of investment, the difference between looking at ten years and looking at one or two years. Why can’t most people hold big bull stocks? Too much temptation. Too bad. Swap is too easy, just a button. Unlike when you buy a house, selling it is a hassle. Stocks are very easy. On the contrary, many people can’t hold the big bull stock.
At that time, the chairman attacked Changsha and failed. He led 900 people to Jinggangshan, and quickly recovered to 10,000 people. Later, Peng Dehuai fought Changsha 2 and was successful, because He Jian’s army went outside to participate in the war of warlords. Later, under the order from above, the reluctant chairman hit Changsha three times, suffered heavy losses, and was later forced to retreat to southern Gansu. From the overall point of view, the enemy is strong and we are weak, and the probability of winning a strong attack is very low, but both the above and the surrounding commanders and fighters agree to fight Changsha, and only the chairman disagrees. Because what the chairman sees is a big logic, the Soviet Union’s urban-centric theory is not suitable for our country, because our country is backward in industry and a large agricultural country, in order to succeed, we must rely on the peasants. To gain the support of the peasants, we must first carry out the agrarian revolution. The support of the people and the accumulation of enough forces in the countryside can be successful in encircling the city from the countryside. But this road is very difficult, because it was repeatedly denied and attacked by the above, and it did not succeed until 1949. It would have been possible in 1939 if it was not interfered by various factors. But the chairman persevered, although the middle was difficult.
This is similar to our investment. Although BYD and Wuliangye are both 10 times and 10 times in 10 years, why are there so few people who hold on to heavy positions? I saw the logic so clearly back then, but I didn’t persevere, because the financial report was ugly, and it was sold out because of the temporary drop in profits or even losses.
Therefore, today’s COFCO Jiakang and Baiyun Mountain, I decided to continue to stick to it. There is no clear sign of a substantial change in the long-term logic of the two companies.
Of course, the bank is also very good. I have studied the bank in the past few days. The top banks have increased by 20% or more, and the price-earnings ratio is around 5 times. The underestimation makes people drool. Of course, the environment today is still different from the environment ten years ago. At that time, the real estate industry did not have large-scale problems. Today’s real estate industry is worse than the environment at that time, but I think it is still controllable. For example, in Chengdu Bank, real estate-related loans account for one-third of the total, and the current bad debt rate is about 2%. To invest in these banks, it is necessary to carefully evaluate the potential bad debts in the real estate-related industry and implement a risk control mechanism.
Back then, I relied on my investment in bank stocks, and I once earned the first pot of gold and the second pot of gold. Today, bank stocks are still so attractive. However, there is a hidden worry that my country’s banking industry has achieved almost the world’s largest profit and market value, and there are obvious signs of excess in the manufacturing industry, which may have a certain impact on bank performance in the future. In contrast, the market value of the leading pharmaceutical industry is only 1% of that of international giants, and there is huge room for growth. Therefore, from a long-term logic perspective, it is worthwhile to study the layout of the underestimated leader in the pharmaceutical industry.
Note: The article is a record of the author’s investment thinking, not an investment recommendation. Investment is risky.
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