Date of Report
October 29, 2024
Broker
UOB Kay Hian Private Limited
Company Overview
Foshan Haitian Flavouring & Food Co., Ltd., listed under the Bloomberg ticker 603288 CH, is a prominent Chinese company specializing in the manufacturing of food seasonings, including soy sauce, oyster sauce, vinegar, flavoring sauce, chicken stock, monosodium glutamate, and oil. Positioned in the Consumer Staples sector, the company serves both offline and online channels, capturing market share from smaller competitors and customizing products for restaurants.
Stock Information
- Share Price: RMB 45.37
- Target Price: RMB 49.50, implying an upside of 9.1%
- Market Capitalization: RMB 252,284.4 million (USD 35,399.9 million)
- 52-Week High/Low: RMB 52.99 / RMB 32.42
- 3-Month Average Daily Turnover: USD 78.5 million
- Major Shareholders:
- Guangdong Haitian Group: 58.3%
- Mr. Pang Kang: 9.6%
3Q24 Financial Performance
In 3Q24, Foshan Haitian achieved a core profit growth of 9% year-over-year (yoy), continuing its stable upward trajectory. The company’s revenue rose by 9.8% yoy to RMB 6,243 million, with gross profit increasing 16.4% yoy, supported by lower raw material costs. Core net profit also saw a 9.1% yoy increase, amounting to RMB 1,289 million. The gross profit margin improved to 36.6%, compared to 34.5% in 3Q23.
For the first nine months of 2024, total revenue reached RMB 20,399 million, a 9.4% yoy rise, while core net profit was RMB 4,615 million, up 11.1% yoy.
Growth Across Product Segments
- Soy Sauce: Revenue rose 9% yoy, totaling RMB 3,075 million.
- Seasoning Sauce: Revenue increased by 10.2% yoy.
- Oyster Sauce: 7.8% yoy growth.
- Other Condiment Products: Notably higher growth at 15.1% yoy.
Sales Channel Performance
Foshan Haitian’s revenue growth was driven by both offline and online channels:
- Offline Sales: Up 8.1% yoy.
- Online Sales: Increased significantly by 45.4% yoy, reflecting strong digital market penetration.
Geographical Sales Distribution
Sales performance varied by region, with the eastern region seeing the most robust growth:
- Eastern Region: 19.9% yoy increase
- Southern Region: 7.8% yoy increase
- Middle Region: 11.5% yoy increase
- Northern Region: 8.1% yoy increase
- Western Region: Slight decline of 0.8% yoy
Strategic Initiatives and the Five-Year Plan
The company’s fourth five-year plan (2024-2028) outlines strategic objectives to sustain growth. The focus areas include:
- Online Channel Expansion: Leveraging the fragmented condiment market by enhancing online sales.
- Market Share Expansion: Targeting smaller competitors to gain additional market presence.
- Customized Innovations: Developing tailored products to meet restaurant demand, as the chain-restaurant sector and food industrialization gain momentum in China.
Financial Position and Valuation
- Target Price: RMB 49.50, based on a discounted cash flow (DCF) model.
- 2024 Valuation: Stock trades at 40.0x projected 2024 PE and 34.1x 2025 PE, suggesting the current valuation is fair.
- Projected Financials:
- Revenue: Expected to reach RMB 27,510 million in 2024.
- Net Profit: Forecasted at RMB 6,230 million, implying 20% revenue and 9% profit growth in 4Q24 to meet targets.
Risks
Key risks to Foshan Haitian’s growth and profitability include:
- Intensified Competition: Increased competition within the industry.
- Weak Consumer Sales: Potential downturn in consumer channel performance.
Recommendation
UOB Kay Hian maintains a HOLD recommendation on Foshan Haitian, with an unchanged target price of RMB 49.50, highlighting the company’s strong market positioning and potential for steady growth through its five-year strategic initiatives.
