1. The sector will continue to callback this week and enter the intensive disclosure period of the annual report next week. In the primary industry this week, food and beverage fell by – 3.47%, 2.28 percentage points lower than the Shanghai Composite Index (- 1.19%). This week, the trend of the sector continued to be affected by the outflow of foreign capital. From February 18th to March 25th, the food and beverage sector exported about 22 billion 400 million of the total capital to the North (out of this week about 3 billion 400 million), while the Baijiu sector outflow about 20 billion 800 million (outflow of about 3 billion 200 million this week). The core leading companies such as Kweichow Moutai Co.Ltd(600519) , Wuliangye Yibin Co.Ltd(000858) , Inner Mongolia Yili Industrial Group Co.Ltd(600887) , Shanxi Xinghuacun Fen Wine Factory Co.Ltd(600809) and so on have been running out 133, 49, 22 and 1 billion 700 million respectively in the past five weeks. Net reduction of 759, 2809, 5720 and 6.17 million shares respectively; Repeated outbreaks and other events also have an impact on the sector. Most fine molecule industries fell this week, with only meat products and snacks rising, up 2.72% and 0.61% respectively; Beer, health care products, dairy products and other products decreased by 7.01%, 4.81% and 4.35% respectively. In terms of individual stocks, Star Lake Bioscience Co.Inc.Zhaoqing Guangdong(600866) led the rise this week (up 32.76%), followed by Shandong Delisi Food Co.Ltd(002330) (+ 16.81%), Yantai Shuangta Food Co.Ltd(002481) (+ 16.52%), Xiwang Foodstuffs Co.Ltd(000639) (+ 15.92%) and St China Portugal (+ 13.29%). Since next week, the sector will enter the intensive disclosure period of the annual report, and the performance is expected to dominate the trend of the sector.
Recently, the Baijiu sector is short drawn from the outflow of foreign capital, the epidemic situation is repeated, the overall callback of the whole market and so on, and the overall flexibility is adjusted. However, the industry is basically stable. After the sector is stabilized, some of the oversold targets will be repaired. The probability of the industry in 2022 is still a structural market. Individual stocks should be preferred from the perspective of fundamentals, valuation and expectation, and continue to be optimistic about high-end liquor Kweichow Moutai Co.Ltd(600519) , Luzhou Laojiao Co.Ltd(000568) and regional sub high-end leaders (such as Jiangsu King’S Luck Brewery Joint-Stock Co.Ltd(603369) , Jiangsu Yanghe Brewery Joint-Stock Co.Ltd(002304) , Shanxi Xinghuacun Fen Wine Factory Co.Ltd(600809) , etc.).
2. How to view the recent decline in Maotai’s wholesale price? Recently, Maotai’s wholesale price has continued to fall, causing market concerns; Since mid 2021, we have held the following opinions on Moutai’s Pricing: Flying price of about 3000 yuan is unreasonable, there is a big bubble, the trend of price reduction is a normal phenomenon, short-term or emotional fluctuations lead to price overfall, but in the long run, 2500 yuan is a reasonable supply and demand balance. We believe that: 1) the essence of Maotai pricing is the balance between supply and demand. The pricing is determined by the market supply and demand relationship and has nothing to do with the ex factory price (the ex factory price may rise or fall). 2) Maotai’s annual supply has increased steadily, the demand has become more diversified, and the consumer demand and non consumer demand (investment, collection, financial and gift attributes, etc.) are intertwined. However, in the first half of 2021, due to the unpacking policy and local supply constraints in the province, the overall supply imbalance led to a sharp rise in prices. With the company’s large-scale production since the second half of 2021, the current decline in the rated price is normal and reasonable. We expect that 2500 yuan will be the balance point of supply and demand in the long run, In the short term, the price will oversold due to emotional fluctuations. 3) The price drop will benefit the future development of Maotai. The drop in the wholesale price will stimulate the actual demand for bottle opening and make the market operation more healthy and sustainable. The consumer demand support below 2500 yuan is strong and will not change the expectation and space for price increase. Meanwhile, in recent years, the performance of Maotai’s rating and stock price has been gradually decoupled. The fluctuation of rating will not affect the company’s fundamentals and performance for a long time. Maotai’s brand value and business model determine that it is still a very scarce deterministic high-quality target in the market. We reviewed the changes of Maotai’s wholesale price since 2012. The wholesale price has experienced two rounds of obvious rise and three rounds of obvious fall. The rise and fall are caused by the imbalance between supply and demand, which also confirms our view (see the text for details).
3. The food industry is facing the double dilemma of epidemic cost, and the market expectation is pessimistic. This week Foshan Haitian Flavouring And Food Company Ltd(603288) and other popular products companies released annual reports. Although the company’s revenue growth in the fourth quarter was higher than expected, due to the spread of market pessimism, the performance has a limited role in boosting the stock price. As the current sector is facing two risk factors: severe epidemic situation and sharp rise in costs, the superimposed Q1 performance base is generally high, and the market has not formed consistent expectations for the first quarter report. (1) Demand side: the high infectivity of Omicron has led to a continuous increase in the number of infections in this round of epidemic, and the number of newly diagnosed cases per day is second only to the most serious period of the epidemic in early 2020. Since March 12, the number of newly confirmed cases on that day has remained above 1000, and there is no obvious downward trend at present. Firstly, the epidemic has limited the consumption scenes related to catering and travel, and more importantly, it has a negative impact on Residents’ consumption intention. The demand of most popular products enterprises in March and even Q2 may be seriously damaged, except for some enterprises in the off-season. (2) Cost side: the prices of some packaging materials and raw materials will continue to rise in 2021. This year, due to the conflict between Russia and Ukraine, most commodity prices have reached a new high in recent five years. 1) In terms of packaging costs, the market prices of aluminum ingots and pet began to rise continuously in the second half of last year. The spot prices of the whole year in 2021 increased by 22.5% and 64.9% respectively. This year, the prices continue to rise, and the latest prices increased by 10.6% and 7.6% respectively compared with the beginning of the year. 2) In terms of production raw material cost, the price of imported barley in the beer industry increased by 22.2% in 2021, and the unit price in February continued to rise by 5.1% compared with last December. In terms of quick-frozen and snack foods, the average price of flour increased by 26.7% compared with the beginning of the year, and the futures prices of palm oil and soybean meal increased by 25.8% and 28.7% year to date. In terms of condiments, CBOT soybean futures price has increased by 40.5% since November 30 last year, and molasses spot price has increased by 24.7% year to date. According to the report of FAO on March 11, the conflict between Russia and Ukraine has suppressed trade and reduced future harvests, and global food prices may surge by 8-20% from the current record level. 3) In terms of energy cost, the price of oil distribution futures has increased by 55.1% year to date. On Wednesday, the contract price of oil distribution futures broke through $120 / barrel in May, reaching a new high. The price rise of bulk commodities has put great pressure on the costs of food packaging, transportation and production. Superimposed on the weak demand side, the cost pressure is more difficult to transmit. Compared with the second half of 2021, the dilemma faced by mass goods enterprises may be more difficult. At present, the sector opportunity has not yet arrived. It is suggested to pay close attention to the two major trends of epidemic and cost, and select individual stocks with relatively high performance certainty from bottom to top in the short term, such as Inner Mongolia Yili Industrial Group Co.Ltd(600887) (the data from January to February have been determined, the operation is good), Angel Yeast Co.Ltd(600298) (the demand is rigid, and the cost risk transfer ability is strong) Chacha Food Company Limited(002557) (the Spring Festival has a good dynamic sales, the price increase is conducted smoothly, and the impact of the off-season is small), Chongqing Fuling Zhacai Group Co.Ltd(002507) (the price of green vegetables is determined to decline, and the profit elasticity is high), etc. In the medium and long term, it is suggested to continue to pay attention to sectors with large development space, low penetration, or rapid increase in industry concentration, such as Shanghai Bairun Investment Holding Group Co.Ltd(002568) , Ligao Foods Co.Ltd(300973) , Fu Jian Anjoy Foods Co.Ltd(603345) , etc.
4. Update of industry and company views: (1) Foshan Haitian Flavouring And Food Company Ltd(603288) : growth against the trend throughout the year, and strive for progress while maintaining stability in 2022. The annual revenue of the company was 25.004 billion yuan, a year-on-year increase of + 9.71%, and the net profit attributable to the parent company was 6.671 billion yuan, a year-on-year increase of + 4.18%. Among them, Q4’s revenue was 7.010 billion yuan, a year-on-year increase of + 22.85%, and the revenue performance exceeded expectations, mainly due to the price increase + the early time of the Spring Festival in 2021. In 2021, facing the multiple pressures of the industry, the company has gone through a very difficult year. During this period, it is not easy to achieve nearly double-digit growth in revenue through positive adjustment. In 2022, the company plans to increase revenue by 12% to 28 billion yuan and net profit by 12% to 7.47 billion yuan. Combined with the current demand and cost situation, the goal of this year is more cautious than that of previous years. At present, although it is still affected by repeated epidemics and high price shocks of raw materials, it is not appropriate to have too high expectations for the complete recovery of the company’s profitability in the short term. However, in the long run, the impact of community group buying and inventory pressure are gradually alleviated. Under this round of cost squeeze, the market share of the industry is expected to further tilt to the top enterprises. Haitian is expected to continue to grow faster than the industry.
5, industry rating and investment strategy: Overall, the trend of steady and steady improvement of Baijiu industry is maintained. The price increase of popular products has brought marginal improvement to the performance of the sector. In the long run, the market share is expected to continue to focus on leading enterprises. After the valuation falls, the investment value of leading enterprises is highlighted. Based on this, we maintain the rating of the food and beverage industry as “recommended”.
Baijiu: Kweichow Moutai Co.Ltd(600519) (recommended), Luzhou Laojiao Co.Ltd(000568) (recommended), Jiangsu King’S Luck Brewery Joint-Stock Co.Ltd(603369) (recommended), Jiangsu Yanghe Brewery Joint-Stock Co.Ltd(002304) (attention), Anhui Kouzi Distillery Co.Ltd(603589) (recommended), Shanxi Xinghuacun Fen Wine Factory Co.Ltd(600809) (recommended), Anhui Gujing Distillery Company Limited(000596) (attention), Wuliangye Yibin Co.Ltd(000858) (recommended), Xinjiang Yilite Industry Co.Ltd(600197) (recommended), Sichuan Swellfun Co.Ltd(600779) (recommended), Anhui Yingjia Distillery Co.Ltd(603198) (attention), and recommended (etc.)
Popular products: Angel Yeast Co.Ltd(600298) (recommended), Inner Mongolia Yili Industrial Group Co.Ltd(600887) (recommended), Chacha Food Company Limited(002557) (recommended), Shanghai Bairun Investment Holding Group Co.Ltd(002568) (recommended), Fu Jian Anjoy Foods Co.Ltd(603345) (concerned), Ligao Foods Co.Ltd(300973) (recommended), Foshan Haitian Flavouring And Food Company Ltd(603288) (concerned), Chongqing Brewery Co.Ltd(600132) (concerned).
Short term recommendation Kweichow Moutai Co.Ltd(600519) , Xinjiang Yilite Industry Co.Ltd(600197) , prefabricated vegetable sector, etc.
6. Risk tips: 1) the recovery of catering channels affected by the epidemic is lower than expected; 2) Macroeconomic fluctuations have hindered the pace of consumption upgrading; 3) Industry policy changes lead to increased competition; 4) The price of raw materials has risen sharply; 5) Focus on the company’s performance or less than expected; 6) Food safety incidents, etc.
