\u3000\u3 Bohai Water Industry Co.Ltd(000605) 337 Zhe Jiang Li Zi Yuan Food Co.Ltd(605337) )
Events. The company released its 2021 annual report. In 2021, it achieved revenue of 1.47 billion yuan (YoY 35.14%), net profit attributable to parent company of 262 million yuan (YoY 22.34%), and net profit attributable to non parent company of 243 million yuan (YoY 22.73%).
The annual revenue increased rapidly, and the profit was slightly slow due to the increase of cost. For the whole year of 2021, at the gross profit end, the company’s revenue increased by 35.14% year-on-year, and the gross profit margin decreased by 1.30pct, so the gross profit increased by 30.40% year-on-year. On the expense side, the expense rate during the period of the company increased by 0.57 PCT year-on-year, of which the sales expense rate increased by 2.12 PCT year-on-year (mainly due to the increase of employee salary and advertising expenses), the financial expense rate decreased by 1.84 PCT year-on-year (mainly due to the increase of interest income from deposits in raised capital accounts, the decrease of bank loans and the decrease of interest expenses), and other income increased by about 5.07 million yuan (mainly due to the increase of VAT reduction and refund). Therefore, the final net profit attributable to the parent decreased by 1.87pct year-on-year, and the corresponding net profit attributable to the parent increased by 22.34% year-on-year.
In the fourth quarter alone, the company’s 21q4 revenue increased by 14.86% year-on-year, and also created the highest single quarter revenue in history. In addition, the gross profit margin of 21q4 decreased by 3.55pct year-on-year, the expense rate during the period increased by 1.30pct year-on-year, the income tax rate decreased by 0.63pct year-on-year, the final net profit attributable to the parent decreased by 3.27% year-on-year, and the net profit attributable to the parent decreased by 4.36% year-on-year.
Quarter on quarter growth, and the overall profit margin remained at a high level. Quarterly, the company’s single quarter revenue increased from 331 million in 21q1 to 414 million in 21q4. At the same time, the year-on-year growth rate of the single quarter continued to maintain a good trend (of which the growth rates of 21q1-q4 were 127.30% / 22.86% / 26.39% / 14.86% respectively). In addition, the net profit margin attributable to the parent company remained at a high level in the four quarters (the net profit margins attributable to the parent company of 21q1-q4 were 16.16% / 21.61% / 17.60% / 16.29% respectively).
We believe that the company’s revenue grew by more than 26% from 16 to 21 years. In addition, the scale of single quarter revenue in 21 years continued to grow quarter on quarter, reflecting a good market development trend. The pressure on the cost side gradually rises, which has an impact on the parent company’s net profit margin. However, on the whole, the company still maintains a good profitability.
The nationwide expansion continued to accelerate. In terms of regions, the top three sales regions of the company’s sales are East China / Central China / southwest, accounting for 53.39% / 19.59% / 16.73% respectively. East China / Central China / Southwest China market is a province with relatively developed economy or dense population in China. The revenue growth rate in the past 21 years was 27.70% / 40.29% / 38.72% respectively, both of which maintained rapid growth. At the same time, there is still a large space for further exploration in relevant markets.
At the same time, the company further expanded its market in North China / South China / Northeast / Northwest China. The revenue growth rate in 21 years was 110.66% / 180.16% / 144.58% / 226.44% respectively, which maintained rapid growth and provided development power for the company’s national layout. We believe that the company is currently in the stage of national expansion of large single products. With the continuous release of new production capacity such as the production of Hebi Zhe Jiang Li Zi Yuan Food Co.Ltd(605337) Food Co., Ltd., we are optimistic about the continuous development of the company’s nationalization.
The channel layout is improving day by day, and the number of dealers is growing rapidly. At present, the company has established a sales network in more than 30 provinces across the country. In the process of nationalization, the company gradually develops and cultivates the market by deeply cultivating the key core market and gradually radiating the “regional distribution model” of driving the surrounding regional market. Through the stepped market development, the company strives to become a national brand in 3-5 years. The company has established a marketing center team composed of more than 500 sales personnel and Headquarters sales management personnel. At the same time, the number of dealers reached 2650 in 2021, an increase of 25.41% over the same period in 2020. On the one hand, the company will refine the channels in key mature regions, refine the market and increase the investment in terminal items and display. On the other hand, the company will continue to strengthen the construction of marketing team and the management of dealers. At the same time, while doing a good job in the refinement and image construction of existing channel terminals, the company will focus on expanding small catering channels. We believe that with the deepening of the company’s channel construction, encryption will further drive the overall performance development.
The future sales volume will be supported by the national distribution. In order to better meet the market demand and meet the requirements of the company’s national layout, the company orderly promoted the construction of production base in 2021, and the company’s own production capacity increased year by year. At present, the company has built five production bases in Jinhua, Zhejiang, Longyou, Jiangxi Shanggao, Qujing, Yunnan and Hebi, Henan, and the national layout of the company has initially taken shape. The company’s production capacity has formed a certain scale to improve the timeliness and stability of product supply and better meet the market demand. At the same time, the company’s capacity expansion also reflects the strong demand for products and the company’s confidence in future development. The active expansion of production capacity is expected to enable the company to seize future market opportunities and support large-scale sales.
Profit forecast and investment suggestions. We estimate that the operating revenue of the company from 2022 to 2024 will be RMB 1872 / 2349 / 2881 million respectively, and the net profit attributable to the parent company will be RMB 306 / 394 / 496 million respectively, and the corresponding EPS will be RMB 1.41/1.82/2.29/share respectively. Combined with the valuation of comparable companies, the company was given a PE valuation of 35 times in 2022 (previously 38x valuation), and the target price was lowered from 55.86 to 49.35 yuan / share, continuing to maintain the rating of “better than the market”.
Risk warning. (1) Food safety risks, (2) market competition intensifies, (3) new channels and new market expansion are less than expected.
