\u3000\u3 Bohai Water Industry Co.Ltd(000605) Hengfeng Information Technology Co.Ltd(300605) 300)
Key investment points:
Jiahe Foods Industry Co.Ltd(605300) is a leading supplier of vegetable fat powder in China. It has been deeply engaged in the market of vegetable fat powder for many years. Its Jinghua trademark and brand are famous trademarks of Jiangsu Province and international famous brands cultivated and developed by Jiangsu Province. In 2018, the sales scale of the company’s non fat products accounted for 14.33% of the Chinese market and 26.85% of the export market, both of which were in the forefront of the industry. In recent years, the demand of downstream milk tea market has exploded. With the support of multiple competitive advantages such as excellent products, strong R & D, rapid response to downstream demand, stable supply and rich customer channel resources, the company’s revenue has significantly benefited. In the first three quarters of 2021, the overall revenue reached 1.755 billion yuan, a year-on-year increase of 38.86%, and the compound growth rate of revenue from 2017 to 2020 was 11.1%.
Vegetable fat powder is an important raw material for food industry and is widely used in the downstream. Vegetable fat powder is a powdered food ingredient processed with glucose syrup, edible vegetable oil and milk powder as the main raw materials. It not only increases alcohol and flavor for food, but also has low cost and stable performance compared with animal fat. It is widely used in the production of a variety of food and beverages, including milk tea, coffee, baked food, etc. In the early stage, it was mainly matched with coffee to increase milk aroma and smooth taste. In recent years, cold-soluble, acid resistant and other functional fat powders were gradually introduced, which also further opened the application of fat powders in the field of fitness and health care. In recent years, the market is worried about the safety of vegetable fat powder, which restricts the development of the industry. We believe that vegetable fat powder is not trans fatty acid. The current technology can achieve zero trans. 70% of Jiahe’s vegetable fat powder products no longer contain trans fatty acid, and residents’ consumption of processed food added with vegetable fat powder is more in pursuit of taste rather than nutrition. Milk tea shops have clearly marked that the raw material of their products is vegetable fat powder.
In recent years, the rapid expansion of existing milk tea has catalyzed the rapid development of the upstream fat powder industry. (1) China’s milk tea industry has experienced the powder era, the street era and the new tea era. At the same time, liquid milk tea has always existed in the market. The end of fat planting is an important raw material of milk tea in each period. (2) Since 2015, the milk tea market has been booming. According to the consulting data of burning knowledge, the low-end, middle-end and high-end milk tea are expected to have a compound growth rate of more than 20% in the next five years, while the middle and low-end are expected to continue to be the main price belt. Due to the moderate price band and good taste, the scale of middle-end milk tea accounts for more than 50%, and the compound growth rate is expected to reach 27%, leading the low-end and high-end milk tea. Low end milk tea has corresponding consumer groups in all line cities, and there is still room to open stores. (3) In consideration of cost, medium and low-end milk tea is prepared with vegetable fat powder unless consumers choose to increase the price for milk. In addition, China’s milk tea industry is still dominated by table milk tea, and the traditional table milk tea is prepared with vegetable fat powder. Under the dual catalysis of cost and taste, vegetable fat powder is an important raw material of milk tea, which is expected to continue to grow with the development of milk tea industry.
The company has accumulated advantages in brand, R & D, supply chain and channels in the end of vegetable fat business. With the change of downstream demand style, Jiahe has always been the first tier supplier. (1) Brand: foreign capital such as Nestle and super group set up vegetable fat powder factories in China mainly to supply their own products and rarely participate in market competition. Among domestic brands, Jinghua is a famous trademark in Jiangsu Province and has a certain popularity. Xiangpiaopiao Food Co.Ltd(603711) is the leader of powdered milk tea. (2) R & D: the company continues to increase R & D investment, leading its peers in R & D results. At the same time, it raises funds to build the R & D center and hire R & D personnel. It is expected that the R & D strength of the company will be further strengthened after the construction is completed. The homogenization competition of new tea drinks has pushed down the new speed and high requirements for the rapid response ability of suppliers. Among the more than 1000 enterprises that provide end products of vegetable fat, the proportion of customized products has been high. (3) Supply chain: the company is located in Suzhou, close to large suppliers, with stable supply and low transportation cost. At the production end, the production capacity of the end of fat planting was full, and the supply was in short supply. The company’s project with an annual output of 120000 tons was put into operation in January 2022, which will effectively alleviate the bottleneck of production capacity. (4) Channel: the company focuses on direct selling, supplemented by distribution, focusing on catering chains and major customers in the food industry. The cooperation is long-term and stable, and the customer stickiness is high. Q1-q3 direct sales channels accounted for 85% in 2021. The company seized the development opportunity of new tea drinks downstream and actively developed catering chain customers. In 2021, q1-q3 catering chain channels increased by 63.21%. In addition, it is worth noting that the price fluctuation of raw materials such as corn starch and palm oil has a significant impact on the company’s gross profit margin. Therefore, the company’s profitability has been under pressure since last year. In the future, if the price of major raw materials falls, the company’s performance is expected to show high elasticity.
Extend the industrial chain, create the second and third growth curves of coffee, other solid drinks and plant protein drinks, and grow into a one-stop plant beverage supplier. Coffee and solid drinks are important downstream applications of vegetable fat powder. The company makes layout according to the market trend, enriches and improves the product matrix, and facilitates customers’ one-stop procurement. At present, the company has a series of coffee fat powder, coffee and plant protein products. Coffee and plant protein drinks are still in the cultivation period, the products are continuously enriched, and the contribution income of other solid beverage businesses continues to increase. In the long run, these subdivided industries have good development prospects: (1) according to Euromonitor data, instant coffee is still dominant in China’s coffee market, with consumption accounting for more than 70%, and the scale is expected to grow slightly and steadily. The bitterness of coffee raises the threshold for entry. Therefore, the mixed milk coffee mixed with vegetable fat powder is still the first choice for most coffee newcomers in China, with sticky taste. (2) With the rapid growth of freshly ground coffee, cold extract coffee liquid and high-quality instant coffee have become a new consumption boom. China’s coffee supply side is rich, while the consumption power of the new generation of consumer groups is improved. They are willing to taste fresh coffee, have certain coffee knowledge, pursue the quality and aroma of coffee, and have diversified demand. (3) Plant protein new tuyere, Oatmeal Milk is popular. The plant protein beverage led by oat milk has 0 sucrose, 0 lactose, low cholesterol and low calories, meeting the current consumption demand of healthy diet. At present, the company’s coffee products 2021q1-q3 account for 3.4% of the total revenue, and the compound growth rate of other solid drinks from 2016 to 2020 is as high as 39%, and the proportion in the total revenue continues to increase from 4.0% in 2016 to 13.5% in 2021q1-q3.
Profit forecast and investment rating company’s capacity of fat end business is in short supply, which limits the growth of income scale. Therefore, in the next three years, with the continuous strong downstream demand and the gradual release of capacity, the certainty of income growth is high. The prices of palm oil and corn starch, the company’s main raw materials, continued to rise in 2021 and fell recently, but still remained high. The short-term profit side is expected to be under pressure. We are optimistic about the performance elasticity of the company after the cost price falls in the later stage. We expect that the revenue growth rate of the company from 2021 to 2023 will be 33% / 27% / 23% respectively, the growth rate of net profit attributable to the parent company will be – 17% / 6% / 44% respectively, and the scale of net profit will be RMB 179 / 191 / 274 million, corresponding to eps0 45 / 0.48/0.69 yuan, pe35 / 33 / 23 times, with overweight rating for the first time.
Risk tip 1) downstream demand is less than expected; 2) Consumers’ awareness of fat end is lower than the expected risk; 3) Price fluctuation risk of raw materials; 4) Food safety risks; 5) The impact of the epidemic exceeded expectations.
