Apple Flavor & Fragrance Group Co.Ltd(603020) (603020)
Key investment points
Apple Flavor & Fragrance Group Co.Ltd(603020) : leading enterprises of flavors and fragrances, steadily increasing the proportion of food ingredients business
The main business of the company is flavor and fragrance, and occupies a leading position in the field of flavor and fragrance subdivision. In 2016 and 18, the company acquired Hangzhou Tianshun and Zhejiang bio respectively to enter the field of industrial chocolate and fruit products, helping the company to become a leader in providing comprehensive compound product solutions. In 2020, the company's operating revenue reached 2.668 billion yuan, a year-on-year increase of 8%, and the net profit attributable to the parent company reached 170 million yuan, a year-on-year increase of 12%.
Super expected one: relying on the existing tobacco flavor business, Nuggets electronic cigarette oil, flavor business is expected to exceed expectations.
The market thinks that the growth of the flavor business is relatively stable, and the tobacco flavor business is relatively small, with little contribution.
We believe that Apple Flavor & Fragrance Group Co.Ltd(603020) tobacco flavor business has the advantages of resources and technology. By the end of 21, it has begun to make efforts to improve the electronic cigarette business with higher profitability.
1) the rapid growth of the electronic cigarette industry, the broad prospect of atomization, and the rapid growth of the tobacco flavor industry. In 2020, the scale of tobacco flavor industry was 7 billion 820 million yuan, and the industry scale was expected to reach 18 billion yuan in 2025, and 20% in 5 years CAGR.
2) have the advantage of customer resources: the current scale of Apple Flavor & Fragrance Group Co.Ltd(603020) tobacco flavor business is about 150 million yuan. Customer resources: mainly traditional cigarettes flavor products, cooperative customers include Hubei, Yunnan, Sichuan, Chongqing, Henan, Shanghai cigarettes, etc. brand involves Yuxi, Yunyan, Hongta mountain, China, double happiness, etc.
2) has the advantage of Technology: many years of deep ploughing and flavoring and flavoring business, and has maintained technical cooperation with Shanghai tobacco in the aspect of tobacco flavor, and has developed 200-300 kinds of tobacco flavor varieties, and more than 10 varieties have entered the central tobacco Reserve Bank, which has the advantage of technology. At present, the company's electronic cigarette flavor business product reserve has basically been completed.
Because the gross profit rate of tobacco flavor is high, it basically stays above 60%+, far higher than the gross margin level of traditional business. With the launch of electronic cigarette products next year, the proportion of tobacco flavor business is expected to continue to improve, which will enhance the profitability of the whole flavor business.
More than expected 2: with the release of production capacity, the food ingredients business has become a new performance driving force with the simultaneous rise of volume and price
The market believes that: after the capacity expansion of chocolate and jam business, there are insufficient orders and limited contribution to the follow-up performance;
We believe that: at present, the two businesses are in short supply. With the improvement of yield rate and the upgrading of product and customer structure, under the logic of volume and price improvement, the contribution of food ingredients to subsequent performance is expected to exceed expectations.
1) Industrial chocolate: the production capacity will increase by 20000 tons per year in the next three years, and the proportion of pure fat chocolate is expected to continue to increase, driving the improvement of overall business profitability.
Current situation: in 2020, the revenue of industrial chocolate business was 320 million yuan (+ 34.5%), the design capacity was 48000 tons, and the actual capacity was about 38000 tons. The main customers were well-known enterprises such as Yili, Hershey, Nestle, Meiji, Yizi and so on.
Volume: 20000 tons of capacity will be released every year in the next three years, and there will be nearly 100000-110000 tons of design capacity at that time. At present, the chocolate production capacity is 38000 tons, and it is planned to increase the production capacity by 70000 tons. It is expected to release 20000 tons every year. It will become the largest industrial chocolate factory in China in 21 years.
Price: the adjustment of product structure promotes the continuous increase of price. At present, the ratio of pure fat to substitute fat is 1:9. With the increase of end customer demand, the demand for pure fat will continue to increase. Apple Flavor & Fragrance Group Co.Ltd(603020) the latest production lines are all pure fat chocolate production lines, which can fully meet the needs of customers. The increase of the proportion of pure fat will drive the profitability of the overall business.
Order: the order is sufficient and the supply exceeds the demand. According to the customers who have become qualified brand suppliers, the annual demand for chocolate production capacity is 200000-250000 tons, which can fully cover the subsequent production capacity release.
At present, the net interest rate of chocolate business is about 5%. With the increase of scale effect brought by capacity release and the upgrading of customer and product structure, it is expected that the net interest rate can reach more than 10% in the steady state.
2) Fruit products: the production capacity will increase by 10000-15000 tons per year in the next three years, the customer and product structure will be continuously optimized, the yield will be continuously improved, and the overall business profitability will be promoted.
Current situation: in 2020, the jam business realized a revenue of 109 million yuan (+ 76%). In terms of production capacity, Zhejiang bio currently has a production capacity of 12000 tons, and its main customers are well-known enterprises such as Mengniu, Guangming and Yili.
Volume: capacity will be released continuously in the next three years. At present, the jam production capacity is 12000 tons, and it is planned to add 50000 tons (design capacity). It is expected to release 10000-15000 tons of production capacity every year in the next three years.
Price: the improvement of yield and the adjustment of product structure improve the overall profitability. The production capacity of bio, especially the newly-built production capacity, is mainly high-end jam products with fruit grains with higher prices. From the perspective of yield rate, in the past, bieu subsidiary was in a state of loss, mainly due to the low yield rate under equipment and technical commissioning. At present, the yield rate of the company has increased to more than 80% and the gross profit margin has increased to more than 20%. With the subsequent improvement of yield rate and the adjustment of product structure, the profitability of the company's overall jam products will continue to improve.
Orders: at present, the company has sufficient orders and the overall production capacity is in short supply. The 21-year intention order of jam product stock customers has been close to 140000 tons, far exceeding the current production capacity of Europe; The resource advantages of key customers ensure the stable demand for EPP industrial jam. At the same time, the company has also started to provide 2C end jam products (OEM) for HEMA. The overall profitability is much higher than that of the original customers, and will continue to contribute to the performance increment in the future.
We expect that the net profit (non consolidated) of jam products of the company will reach 2-3 million yuan in 2021, turning losses into profits. With the improvement of yield and the upgrading of customer and product structure, the net interest rate is expected to reach the level of 10% - 15% in the steady state.
Profit forecast and valuation
We expect the company's revenue from 2021 to 2023 to be RMB 3.232/41.14/5.039 billion respectively, with a year-on-year increase of 21.1%, 27.3% and 22.5% respectively; The net profit attributable to the parent company was 201 / 271 / 332 million yuan respectively. Therefore, it is estimated that the company's EPS from 2021 to 2023 will be RMB 0.63/0.85/1.04 respectively, and the corresponding PE will be 24.63/18.30/14.95 times respectively. According to the comparable average valuation of the industry, we give Apple Flavor & Fragrance Group Co.Ltd(603020) 30-35 times PE in 2022, the corresponding target market value is 8-9 billion yuan, and the corresponding current price still has more than 35% space. It is covered for the first time, given a "buy" rating and key recommendations.
Risk tips: food safety risks and consumer preferences have changed greatly, and new business expansion is less than expected
