Date of Report: October 28, 2024
Broker Name: UOB Kay Hian
Company Overview
Jonjee Hi-Tech Industrial & Commercial is a leading player in China’s condiment industry, particularly known for its soy sauce production. The company also offers a range of other products, including chicken powder and cooking oil. Positioned within the Consumer Staples sector, Jonjee operates under the Bloomberg ticker 600872 CH.
Financial Performance
3Q24 Results
- Revenue Growth: In 3Q24, Jonjee reported revenue of RMB 1,328 million, marking a 2% year-on-year (yoy) increase and a 17% quarter-on-quarter (qoq) rise.
- Gross Profit: Gross profit reached RMB 515 million, showing a substantial 17% yoy and 26% qoq growth. The gross profit margin improved to 38.8%, a 5.0 percentage point (ppt) increase from the previous year and 2.6 ppt from the previous quarter.
- Core Net Profit: Core net profit rose by 28% yoy to RMB 213 million, representing a 107% qoq increase, with a core net profit margin of 16.0% (up 3.2 ppt yoy and 6.9 ppt qoq).
9M24 Summary
- Total Revenue: For the first nine months of 2024, Jonjee’s revenue was RMB 3,946 million, reflecting a slight 0.2% decline compared to 9M23.
- Gross Profit & Margin: The gross profit for 9M24 was RMB 1,474 million, with a 4.8 ppt increase in gross margin to 37.4%.
- Core Net Profit: Core net profit for 9M24 reached RMB 552 million, a 19% yoy rise, with a core net profit margin of 14.0%.
Revenue by Segment
Product Categories
- Soy Sauce: Representing 62% of Jonjee’s condiment revenue, soy sauce sales rose by 0.5% yoy in 3Q24 after a 22% yoy decline in 2Q24.
- Chicken Essence and Powder: Revenue for this category surged 14% yoy in 3Q24, rebounding from a 15% decline in 2Q24.
- Cooking Oil and Other Products: Sales for cooking oil fell by 9% yoy, contrasting with a 29% yoy growth in 2Q24. Other products also faced a 9% yoy decline.
Regional Performance
- Southern Region: Revenue grew by 1% yoy in 3Q24, a recovery from the 11% yoy drop seen in 2Q24.
- Northern and Eastern Regions: Both regions showed positive growth, with a 3% yoy rise in the North and a 9% yoy increase in the East.
- Middle and Western Regions: Revenue declined by 13% yoy in these regions.
Strategic Updates
Channel Adjustments and Price Increases
Jonjee’s channel adjustments in 3Q24 led to lower selling expenses, which contributed positively to the profit margins. In September 2024, Jonjee announced a 2-3% ex-factory price increase for key products, intended to counter rising costs and support distributor marketing efforts. These adjustments are expected to accelerate revenue growth in 4Q24, aided by early distributor restocking for the Chinese New Year and favorable base effects.
Financial Forecasts
Earnings Revisions
- 2024 Forecast: The earnings forecast for 2024 was revised downward by 2% due to anticipated higher selling expenses, though gross margins were increased by 0.8 ppt in light of lower raw material costs.
- 2025 Forecast: The 2025 earnings forecast saw a 2% upward adjustment, attributed to anticipated benefits from successful channel adjustments. The selling expense ratio for 2025 was revised down by 0.1 ppt.
Long-Term Projections
For the period extending to 2026, Jonjee’s net turnover is projected to increase steadily, with forecasts indicating RMB 5,678 million in 2024, RMB 6,529 million in 2025, and RMB 7,517 million by 2026. Net profit margin is also expected to strengthen over time, reaching 15.8% by 2026.
Valuation and Investment Recommendation
Target Price and Valuation
UOB Kay Hian has maintained its “BUY” recommendation for Jonjee, with a revised target price of RMB 28.40, a 5% increase. This valuation reflects a 29.2x 2024 forward P/E ratio and a 22.7x 2025 forward P/E. Currently, Jonjee trades at a 24.5x 2024 forward P/E and a 19.1x 2025 forward P/E.
This comprehensive overview highlights Jonjee’s ongoing strategic adjustments, promising financial performance, and market potential.
