China's leading food and beverage enterprises, the three board brands leading the industry. The company is a leading enterprise in China's food and beverage industry, and its main business covers household consumption, ready-to-drink drinks and snack food, among which "Dali Garden" has the first market share in the industry. Douben, Lehu, and its brands such as Douben, Lehu, and its brands such as Bic and tasty are all in the forefront of the industry. Since its establishment in 1989, after 30 years of rapid development, the company has grown into a comprehensive modern food enterprise group ranking among the top 500 private enterprises in China. In the future, the company will further consolidate the leading position of snack food industry, continuously enhance the market share of ready-to-drink plate, build plant protein into a new leading industry, and expand the national scale advantage of short-term bread industry.

From 2012 to 2017, the company's main business income increased rapidly, from 10.812 billion yuan to 19.799 billion yuan (CAGR=12.86%). In 2018, the company's main business income exceeded 20 billion yuan, and then remained relatively stable. From 2019 to 2021, the company's main business income increased from 21.375 billion yuan to 22.294 billion yuan (CAGR=2.12%). In addition, the company maintains a high profitability, with an average net profit of 3.805 billion yuan, a net interest rate of more than 16% and a ROE of more than 20% in 2019-2021.

Household consumption industry: "Meibachen" / "Douben" two-wheel drive. The company's household consumption plate is composed of "Doubamoto" soy milk and short bread "Meibachen". In 2017, based on the Chinese people's demand for healthy nutrition, the company launched natural non-added "Douben" soy milk. In October 2018, the company launched the short bread brand "Meibachen", which is targeted at the breakfast scene in family consumption. The company has made development plans for tens of billions of sales of soy milk and short bread respectively, making it one of the main drivers of the company's future performance growth. The corporate household consumption sector has maintained rapid growth over the past few years, with income from the corporate household consumption sector growing from 1.876 billion yuan in 2018 to 3.635 billion yuan (CAGR=24.67%) in 2021. We believe that the household consumption industry has a long-term market space, and as the company continues to make efforts in the field of short bread and soy milk, it is optimistic that the company will continue to be stuck in the future and become the leader of domestic household consumption.

Ready-to-drink beverage industry: energy drink track long slope thick snow, waiting for Lehu to regain its strength. According to Euromonitor data cited by Huajing Intelligence Network, from 2014 to 2019, the size of China's energy drinks market increased from 23.5 billion yuan to 47.3 billion yuan, maintaining a growth rate of about 15%. It is expected that the compound growth rate of energy drinks will reach 8.0% from 2021 to 2025.

Launched in 2013, Lehu quickly opened up the market with the advantage of Dali. While grasping the core demand of consumers for functional drinks "refreshing and anti-fatigue", Lehu matches different products according to different channels. At present, it has launched three specifications: 250ml gold cans, 380ml bottles and 500ml awakening bottles, which cover different consumption scenes and consumers through differentiated products and prices. In addition, in terms of channel management, the company sets up its own team to focus on the six important consumption scenes of schools, stations, sports venues, entertainment, offices and emerging places; in terms of brand marketing, Lehu continues to strengthen the positioning of professional functional drinks. We believe that the energy drink track with long slope and thick snow will maintain a good prosperity. As the company continues to make efforts in the product / channel end, it is optimistic that Lehu will continue to grow steadily and rapidly.

Snack food industry: stable business scale, product / brand upgrading to promote market development. Snack food sector is the company's traditional business, including baked pastry "Dali Garden", potato puffed food "Coke" and biscuits "delicious" three major brands. In recent years, Dali Park continues to promote product quality upgrading and high-end market penetration. But Beek firmly occupies the mass consumer market through the composite potato chip series, and meets the consumption upgrading demand through the pure cut series. Delicious food has established a perfect sub-brand matrix, including children's snack market, mass consumer groups, high-end market segments, etc., rich product matrix covers all kinds of consumer groups. From 2012 to 2015, the income of the snack food sector increased from 6.319 billion yuan to 9.519 billion yuan, with an average annual compound growth rate of 14.63%. In 2016-2021, the income of the snack food sector remained stable at more than 9.5 billion yuan. We believe that the basic market of the company's snack food industry is stable, and we are optimistic about continuous breakthroughs in product upgrading.

Supply chain / sales network is strong and complete, all-channel expansion. The company has built a gold sales channel with a reputation in the industry and formed a marketing network covering the whole country. By the end of 2019, the company had more than 5400 dealers, a sales network covering all provinces and cities and most county-level administrative regions in China, and more than 12100 full-time salespeople to maintain and support about two million sales points. In recent years, in line with the market trend, the company has widened all channels, consolidated the advantages of traditional channels, further improved the penetration of modern channels, significantly increased e-commerce sales, initially formed community group purchases, and further improved channel efficiency. We believe that the company's sales network foundation is solid, with the diversification of the channel side, optimistic about the company's performance growth continues to benefit.

The share incentive scheme reflects confidence in future development and encourages the company's long-term sustainable development. On December 02, 2021, the company issued a share incentive plan and a share buyback plan.

The Plan Board meeting decided to provide a total of not more than HK $1 billion to the trustee to purchase existing shares at an appropriate time. In an announcement issued on March 29, 2022, the board of directors resolved to grant a total of 49906700 award shares (consideration zero) to the grantees of the share awards who are employees of the company under the share incentive scheme, accounting for about 0.36% of the issued share capital of the company at the date of the announcement. We believe that the share buyback reflects that the company believes that the current stock price and share trading volume have seriously underestimated the company's performance and potential value, as well as the company's confidence in business prospects and prospects, and that the share incentive scheme will effectively stimulate the enthusiasm of employees and promote the long-term sustainable growth of the company.

Profit forecast and investment advice. We estimate that the total operating income of the company from 2022 to 2024 will be 241.35pm 261.98max RMB 286.69 billion, the main business income will be 240.55Universe 261.14Universe RMB 28.581m, the homing net profit will be 35.62pm RMB 3989max RMB 4.404 billion, and the corresponding EPS will be 0.26bp 0.29max RMB 0.32 yuan per share respectively. We give the company a valuation range of 16-20 times PE (2022E), corresponding to a value range of RMB4.16-5.20 per share, and a reasonable value range of HK $5.20-HK $6.50 per share based on the exchange rate of the Hong Kong dollar to RMB0.80. it covers and gives a "better than the market" rating for the first time.

Risk hint. (1) food safety risks, (2) intensified market competition, (3) new products, new channels, new market expansion is not as expected, (4) upstream raw material costs fluctuate greatly.