CMD's 4Q13 raw milk selling price to Mengniu was raised 11%YoY to Rmb4.75/kg, though still below peers' RMb4.8-5.1/kg.

Mengniu (owns 28% of CMD and contributed 82% sales inFY13/6) decided to standardise pricing mechanism to assuretransparent, fair and comparable prices among its all suppliers.

Compared with Huishan (China's second largest cow farmoperator), CMD has a longer track record, 10% lower yield, 9%lower ASP, 63% higher feed cost and 25.4 p.p lower GP margin.

We think it suggests earnings upside, once ASP gap is narrowedand more domestic alfalfa is used.

After eight years of fast expansion, CMD is now self-sufficient forbreeding and no longer import calves in CY2013. It leads topositive FCF in CY2014, vs negative FCF for most young farms.

We raise EPS estimates by 5-7% to factor in higher ASP. OurDCF-based TP of HK$3.4 (from HK$2.8) represents 17.1x and20.6x CY14E recurrent and reported earnings. We estimate cashEBITDA to see 38% CAGR over FY2013-16E. OUTPERFORM.

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