\u3000\u3 Shengda Resources Co.Ltd(000603) 517 Juewei Food Co.Ltd(603517) )
Key investment points
The development of the main business has been affected by the epidemic, and the supply chain business has become a new contribution to revenue
Since the fourth quarter of 2021, many places in China have suffered from epidemic outbreaks, and offline consumer demand has been sluggish. In terms of products, the year-on-year growth rates of fresh goods / Poultry / livestock / vegetables / other products in the single quarter of 21q4 and 22q1 were 4.3/2.6/144.2/4.2/12.3% and 2.8/4.2 / – 62.8/4.7/1.4% respectively. Store sales have continued the downward trend month on month since 21q1. In terms of regions, the growth rate of 22q1 Southwest / Northwest / Central China / South China / East China / East China / outside the mainland market was 1.6/62.6/37.0/0.5/0.7/8.4/8.8%, of which South China and East China, as key markets of bittern, were seriously controlled by the epidemic, which dragged down the growth of overall revenue. When the development of the main business was blocked, the company’s other main businesses (mainly exclusive distribution and centralized mining) achieved an operating revenue of 540 million in 21a, a year-on-year increase of 212.3%; The revenue of single Q4 was 490 million (+ 705.7%), and its contribution to the main business increased by 29% month on month compared with 21q3, accounting for 8.5% in the whole year. In the long run, the company has continuously built its supply chain capacity for more than ten years, and has upgraded from a food enterprise dominated by sales to an industrial production enterprise based on the food industry. In the future, it is expected to further empower the food ecosystem through six business platforms: CO mining, CO warehousing, CO distribution, CO marketing and co intelligence. Referring to the development history and industry scale of head supply chain integrators such as Sysco, we are firmly optimistic about the huge growth space behind the company’s supply chain business.
The goal of opening stores in 21 years was completed as scheduled, and the epidemic situation was repeated, and the leader “went up against the current”
The company opened 1315 stores in the whole year, in line with expectations; The single store has recovered to more than 90% of the level before the epidemic in 19 years. According to the company’s annual report, in 2021, the offline format of Luwei was deeply impacted by the epidemic. Although the passenger flow in the high potential consumption areas of key commercial cities in China was warmer than that in 2020, it was still lower than that in 2019. Among them, Guangzhou, Beijing, Nanjing and other places still have a passenger flow gap of about 20% compared with 19 years. Under the background of repeated epidemics, the company opened stores against the trend again to increase the market share. According to the calculation of narrow door meal eye data, the company has opened about 1200 stores from November 21 to the end of the first quarter of 22, including about 800 22q1. It is noteworthy that the counter trend store opening strategy not only includes franchisees’ store opening, but also the company may make efforts through multiple channels. The gradual implementation of the plan of “starting a prairie fire” + “embracing all rivers” + “campus store” is expected to bring incremental store contributions and help the center of store opening throughout the year to a new level of 1500 +. Looking forward to the future, considering that the revenue growth of the company’s stores aged 1-2 years is stable at 10%, and that of old stores aged more than two years can reach 20% +, accelerating the opening of stores in advance during the epidemic period and seizing high-quality points is expected to provide momentum for subsequent growth. In the post epidemic era, the revenue scale has increased steadily with high certainty.
The short-term disturbance does not change the logic of leading growth, and multiple measures help the company “go steady and go far”
Affected by multiple factors such as factory power rationing and repeated outbreaks in the second half of the year, the company’s 21a revenue increased by 24.1% (less than 25%), and the equity incentive target was temporarily stranded. We believe that it is not easy for the company to deliver a stable growth report card under heavy interference. Missing short-term performance does not change the strategic determination and confidence of the company. In the letter to shareholders, the company made it clear that the current primary goal is to improve the market share and industry status. From three aspects, the company’s corresponding measures: 1) in terms of market share, the company expands stores through multiple channels, the number of stores opened in the whole year is expected to exceed expectations, and the revenue growth is guaranteed after the inflection point of the epidemic. According to Frost & Sullivan data, the company’s market share is only 8.6%, and the proportion of mom and pop stores: brand stores is 7:3. Under the disturbance of the epidemic, the clearing of small and medium-sized brands is accelerated, and the company is expected to usher in the best window period to improve its market share; 2) In terms of brand rejuvenation & channel diversification, the company launched the anniversary recharge activity in April to provide diversified schemes and use scenarios for different customer groups. In the following may, it will continue to launch new products that meet the theme of brand rejuvenation. Combined with the good marketing feedback of 21 year Little Red duck series products, we believe that the continuous building of rejuvenation and channel diversification will drive the gradual repair of store sales.
Franchisee subsidies sacrifice the short-term profit level, and it is expected to usher in the gradual repair after the epidemic
The gross profit margin of 21q4 and 22q1 of the company was 26.3/30.3%, which decreased year-on-year. The judgment is due to: 1) high cost of raw materials: the price of duck by-products is still high due to the insufficient supply of slaughterhouses and the reduction of upstream inventory; The prices of oil, salt, sugar and other condiments have continued to rise due to the impact of the international environment; 2) Subsidies to franchisees: in order to protect the interests of franchisees and the stability of franchisees’ system, the company continues to give franchisees discounts, decoration, equipment funds and other subsidies during the store opening competition. In terms of sales expense ratio, the company’s 21q4 / 22q1 sales expense increased significantly to 11.1 / 14.0% compared with the same period, mainly due to the company’s continuous improvement of brand influence and the significant increase of investment in advertising expenses; In terms of management fee rate, 21q4 / 22q1 are 7.2 / 6.5% respectively. Looking forward to the follow-up, after the current inflection point of the epidemic, the maintenance of franchisee system and brand building will be effective, driving the cost investment and gross profit to be repaired.
Profit forecast and valuation
In view of the first quarterly report of the company, we adjusted the profit forecast for 22-24 years. It is estimated that the operating revenue for 22-24 years will be RMB 7.57/9.12/10.98 billion, with a year-on-year growth rate of 15.6% / 20.5% / 20.3%; The corresponding net profit attributable to the parent company was RMB 9.9/13.4/1.58 billion, with a year-on-year growth rate of 1.2% / 35.0% / 17.9%. EPS is 1.61/2.18/2.57, and the current share price corresponds to PE is 26 / 19 / 16, maintaining the “buy” rating.
Risk tips:
Food safety; Price fluctuation of raw materials; Industry competition intensifies; Repeated epidemic and other irresistible factors; The demand for store expansion and food ecosystem empowerment was lower than expected.
