Date of Report
October 29, 2024
Broker
UOB Kay Hian
Company Overview
Foshan Haitian Flavouring & Food Company Ltd. specializes in manufacturing food seasonings and condiments. The company develops, produces, and distributes a wide range of products, including soy sauce, oyster sauce, vinegar, flavoring sauces, chicken stock, monosodium glutamate, and cooking oil. Its primary market sector is Consumer Staples, and its stock is listed under the Bloomberg ticker: 603288 CH.
Stock Performance and Major Shareholders
- Share Price: RMB 45.37
- Target Price: RMB 49.50 (a 9.1% projected upside)
- Market Capitalization: RMB 252,284.4 million (US$35,399.9 million)
- Average Daily Turnover: US$78.5 million over three months
- 52-Week Price Range: RMB 32.42 to RMB 52.99
- Major Shareholders:
- Guangdong Haitian Group: 58.3%
- Mr. Pang Kang: 9.6%
Financial Highlights
3Q24 and 9M24 Performance
- Total Revenue for 3Q24: RMB 6,243 million, representing a 9.8% year-over-year increase, though a 3.4% quarter-over-quarter decline.
- Gross Profit for 3Q24: RMB 2,286 million, marking a 16.4% rise year-over-year, with a gross profit margin of 36.6%.
- Core Net Profit for 3Q24: RMB 1,289 million, up by 9.1% year-over-year but down 12% quarter-over-quarter.
- Nine-Month Revenue (9M24): RMB 20,399 million, a 9.4% increase from the previous year.
- Nine-Month Core Net Profit (9M24): RMB 4,615 million, showing an 11.1% year-over-year growth.
The company has managed to increase its gross profit margins due to easing raw material costs. However, selling expenses have grown, balancing some of these gains.
Product and Regional Performance
Revenue by Product
- Soy Sauce: RMB 3,075 million (8.7% YoY increase)
- Seasoning Sauce: RMB 583 million (10.2% YoY increase)
- Oyster Sauce: RMB 1,105 million (7.8% YoY increase)
- Other Condiments: RMB 1,019 million (15.1% YoY increase)
Revenue by Region
- Eastern Region: RMB 1,175 million (19.9% YoY increase)
- Southern Region: RMB 1,153 million (7.8% YoY increase)
- Middle Region: RMB 1,287 million (11.5% YoY increase)
- Northern Region: RMB 1,439 million (8.1% YoY increase)
- Western Region: RMB 728 million (0.8% YoY decrease)
Revenue by Channel
- Offline Sales: RMB 5,445 million (8.1% YoY increase)
- Online Sales: RMB 336 million (45.4% YoY increase)
Strategic Direction
Fourth Five-Year Plan (2024-2028)
Foshan Haitian remains focused on its fourth five-year plan, aimed at steady growth driven by:
- Increased Online Channel Penetration: Efforts to capture market share in the growing and fragmented condiment industry.
- Market Share Expansion: Aiming to gain ground as smaller competitors face challenges.
- Product Innovations: Tailoring products to meet changing restaurant industry demands, particularly as chain restaurants gain prevalence and food industrialization increases.
Financial Position and Key Metrics
- FY24 Earnings Per Share (EPS): Forecasted at 113.3 fen
- Price-to-Earnings Ratio (PE): 40.0x for FY24, projected to drop to 34.1x in FY25
- Dividend Yield: 1.6% for FY24, with an upward trend expected to reach 2.2% by FY26
- Net Debt-to-Equity Ratio: Expected to continue declining, reaching -89.1% by FY26
Stock Impact and Valuation
Foshan Haitian’s current valuation aligns closely with its target, supporting UOB Kay Hian’s recommendation to maintain a “HOLD” rating with a target price of RMB 49.50. The stock’s current trading metrics reflect a reasonable valuation given projected growth rates and risks.
Risks
Potential risks include:
- Increased Competition: The condiment industry faces intensified competition, which could affect market share and profitability.
- Weak Consumer Channel Sales: Reduced consumer spending may impact direct-to-consumer channels, which could limit growth.
