\u3000\u3000 Chongqing Fuling Zhacai Group Co.Ltd(002507) (002507)
Events
On the evening of February 24, 2022, the company released the performance express for 2021: the revenue in 2021 was 2.519 billion yuan, an increase of 10.82% and the net profit attributable to the parent company was 742 million yuan, a decrease of 4.53% at the same time; Deduct RMB 694 million for non-profit items, with a decrease of 8.50% at the same time.
Key investment points
The performance in the fourth quarter slightly exceeded expectations, and the net profit improved significantly month on month
According to the performance express, the revenue of 2021q4 was 563 million yuan, an increase of 18.74% at the same time; The net profit attributable to the parent company was 238 million yuan, an increase of 45.73%, slightly higher than expected. We believe that there are the following reasons: 1) the demand has improved in 2021, superimposed with the indirect price increase in 2020 and the direct price increase in 2021; 2) In the fourth quarter, the company actively carried out intensive cultivation and sinking of channels, the cost investment was more accurate, the overall sales cost may decline, and the price increase measures also helped to release profits.
Mustard industry leader, with strong pricing power
Raw materials and packaging materials account for about 70% of the company’s costs. The snow disaster in 2021 and the epidemic caused the price of raw materials to continue to rise to a phased high. In Q2 of 2021, the company began to gradually use the newly acquired mustard raw materials, and the cost pressure gradually appeared. The gross profit margin of 2021q3 was only 51.64%, with a year-on-year increase of – 7.27 percentage points.
Based on this background, the company announced a price increase in November 2021 to adjust the ex factory prices of some products, with an increase range of 3% – 19% for each category. The price increase will reshape the channel price system, the terminal price of the circulation channel will move from 2 yuan to 2.5 yuan, and the channel profit is expected to thicken. On the other hand, the price of green vegetable head, the main raw material, fell back in 2022. The price increase is expected to be successfully implemented by the end of the first quarter, and the profit elasticity of the company will be released in 2022.
New products continue to develop and channels sink steadily
In the face of the multiple impacts of repeated outbreaks leading to weak demand and rising raw material costs, the company implemented “urban precision marketing and reshaping the market structure” around “clarifying the value of pickled mustard and becoming a hot Wujiang brand”.
Brand side: the company increased the investment in publicity expenses and carried out brand publicity in new media, ladder media, China Central Television, offline ground standardized display and other ways.
Product side: transformation to diversification, such as power pickles, meals, etc. the company has upgraded the packaging of products, reduced salt by 30%, piloted in 16 cities, and is expected to continue to launch new products in 2022.
Channel side: the company focused on market intensive cultivation and channel sinking, the number of offices increased to 81, the proportion of sinking market revenue continued to increase, and the growth rate of county-level market revenue was higher than the overall growth rate.
Capacity side: the 50000 ton pickle production base construction project in Liaoning, the 200000 ton mustard production capacity of the green intelligent production base and the 16000 ton / year crisp mustard production line will be released successively. The long-term capacity is expected to exceed 500000 tons and the pit capacity is expected to reach 700000 tons.
Profit forecast
Looking forward to 2022, we believe that the price of raw materials is expected to fall. With the release of production capacity and the large volume of kimchi, radish and other categories, the overall profitability is expected to be improved. We are optimistic about the increment brought by the coordinated development of mustard dominated and multi categories. With the steady progress of channel sinking, the company’s performance has increased steadily. We expect that the EPS from 2021 to 2023 will be 0.94/1.27/1.59 yuan, and the current share price corresponding to PE will be 33, 24 and 20 times respectively. It will be covered for the first time and given a “recommended” investment rating.
Risk tips
Macroeconomic downside risk, epidemic drag on consumption, regional expansion less than expected, new product promotion less than expected, price increase less than expected, new product promotion less than expected, capacity digestion less than expected, raw material price rise, etc.
