\u3000\u3 China Vanke Co.Ltd(000002) 507 Chongqing Fuling Zhacai Group Co.Ltd(002507) )
Mustard industry leader, steady growth in performance
After more than 1.34 billion yuan of cultivation in 1988, the company became the leader in the Chinese pickle industry, with an operating revenue of 3.02% from 1.34 billion yuan in 2024. The net profit attributable to the parent company increased from 30 million yuan in 2007 to 740 million yuan in 2021, with a CAGR of 26% in 14 years. Roe increased from 10% in 2010 to 14% in 2021, which is at a high level in the industry. The major shareholder and actual controller of the company is the state owned assets supervision and Administration Commission of Fuling District, Chongqing, with an indirect shareholding of 35%.
Pickles are excellent, and mustard and pickles still have great room for growth
In the mustard industry, packaged mustard accounted for 58%, and its sales increased from 3.78 billion yuan in 2013 to 7.22 billion yuan in 2020, with a CAGR of 10% in 7 years; The sales volume of mustard industry increased from 480000 tons in 2008 to 820000 tons in 2020, and the CAGR in 12 years was 5%. The ton price of pickle industry is about 24000 yuan / ton in 2019, and the CAGR from 2005 to 2019 is 3%. In terms of per capita consumption, China’s per capita consumption in 2019 was US $0.7/person and 0.2kg/person, lower than US $39.3 and 7.9/person and 4.3 and 1.2kg/person in Japan and the United States. The market concentration increased significantly, and Cr5 increased from 46% in 2008 to 72% in 2019 Chongqing Fuling Zhacai Group Co.Ltd(002507) city’s share increased from 21% in 2008 to 36% in 2019, ranking first all the time. The market scale of kimchi has increased from 26 billion yuan in 2009 to 62.1 billion yuan in 2020, with a CAGR of 8% in 11 years. At present, the industry concentration is low, CR3 is only 2.5%, compared with 77% in Korean kimchi industry, and the market concentration of Chinese kimchi industry still has great room to improve.
Product + brand + channel, three-dimensional construction of the company moat
Brand side: Chongqing Fuling Zhacai Group Co.Ltd(002507) as a famous brand, it is known as the world’s three famous pickles together with French sour cucumber and German sweet and sour cabbage. The company won many honors from 1970 to 2020. The company continues to invest at high cost to build and form a national brand. “Wujiang” trademark won the first Chinese well-known trademark in China’s Pickle industry in 2004.
Product side: mustard is the main product, and the strategy of large single product is implemented. The revenue of mustard remains above 85%. The revenue increases from 420 million yuan in 2007 to 2.23 billion yuan in 2021, and the CAGR in 14 years is 13%. The two main brands of “Wujiang” and “Huitong” are formed, the product matrix is gradually enriched, and radish and kimchi are expected to become new points. The company has an existing production capacity of about 200000 tons, a long-term effective production capacity of more than 300000 tons, and a pit capacity of about 5 Shenzhen Zhenye(Group)Co.Ltd(000006) 00000 tons.
Channel side: the nationwide layout is beginning to show. In 2021, the proportion of South China / East China / Central China / North China / Central Plains / Northwest / Southwest / Northeast is 28% / 17% / 12% / 12% / 10% / 9% / 8% / 4% respectively. In 2021, there were 3030 dealers and 81 offices, actively expanding various channels such as takeout, catering, aviation, online and so on.
Having the pricing power to cross the cycle, 2022 is expected to usher in an inflection point
The company has obvious advantages in the upstream, middle and downstream industrial chain and has strong pricing power. Almost every 2-3 years from 2008 to 2021, the cost pressure will be passed on through direct or indirect price increases, and the price increases are relatively smooth, with little impact on sales. The price increase in 2021 will reshape the channel price system, and the terminal price of circulation channels will move from 2 yuan to 2.5 yuan. Strong pricing power enables the company to run through the cycle. In 2022, price increase + cost reduction + fee reduction, and dividends will continue to be realized. The price increase has made good progress, and the terminal has been basically completed. Under the price increase effect, the price increase dividend is prominent. The overall cost side has decreased. The average purchase price of young vegetables in 2022 is 800 yuan / ton (with a decrease of about 30%). It is expected to launch new vegetables in succession around May. The cost has dropped significantly, driving the increase of gross profit margin. In 2022, the cost investment will be more accurate, the overall sales expense rate is expected to decline, and the profit side has greater flexibility.
Profit forecast
We are optimistic about the performance elasticity brought by the company’s price increase + cost reduction + fee reduction in 2022, as well as the long-term performance release brought by the improvement of concentration, channel sinking and category expansion. It is estimated that the company’s EPS from 2022 to 2024 will be RMB 117 / 142 / 170 million respectively, and the corresponding PE will be 29, 24 and 20 times respectively, maintaining the “recommended” rating.
Risk tips
Macroeconomic downside risks, epidemic drag on consumption, regional expansion is less than expected, new product promotion is less than expected, price increase is less than expected, capacity digestion is less than expected, raw material prices rise, etc.
