Report Summary:
Mergers and acquisitions have entered the scarce seafood race track, and profitability quickly recovered after the epidemic. Jiawo Group, the controlling shareholder of Jiawo Foods, is a wholly-owned subsidiary of the modern agriculture sector under Lenovo Holdings. The company is a core enterprise in its protein 3R business segment. In 2019, it successfully entered the salmon race track through the merger and acquisition of Australia Seafoods, the world's top ten salmon farming companies. As the impact of the global pandemic gradually abated, demand in the salmon market picked up rapidly, the company's reporting side was continuously optimized, and gross profit/net interest rate continued to grow. In the first quarter of 2022, the company achieved 110 million yuan in net profit, from loss to profit.
The 100 billion track barrier is high, and prices are supported by a long-term gap in demand. Based on the average price and sales volume in 2021, the global salmon market is over 100 billion yuan. However, due to natural environmental restrictions, salmon farming is only suitable for a few countries and regions around the world. Among them, Norway and Chile are the two main producers. The total production of Atlantic salmon in 2021 accounts for 78% of global production, while both Norway and Chile strictly control the issuance of salmon licenses to limit the expansion of local industries. Therefore, entry barriers to the salmon industry are high, and the supply-side growth rate is expected to gradually slow down in the future. In the short term, due to factors such as the farming cycle and climate, demand will recover faster than supply, and prices will remain high; in the long run, the demand gap will support the central rise in salmon prices.
Seize high-quality upstream resources and vigorously explore the domestic C-side market. The company has nearly 100 farming licenses in Chile's 11th and 12th regions, which have superior resource endowments, and has a firm grip on high-quality upstream resources. With the completion of a new processing plant in District 12, the company's processing capacity, processing and transportation efficiency, and cost control capabilities will be further strengthened. The future is “global resources+consumption in China”
Under the strategic policy, the company will make efforts to lay out the domestic salmon market. Drawing on the experience of shareholder Jiawo Group successfully establishing the blueberry brand “Jiawo Blueberry”, it has built the number one salmon brand in China, seizes consumers' minds, simultaneously strengthens online and offline channel development, continues to expand value-added products, continuously strengthens consumer cultivation, and opens up a new curve for the company's growth.
Profit forecast and investment advice: The recovery in global demand for salmon has driven a rapid rise in prices, and the impact of the epidemic on import and export trade and the pace of company investment and harvesting has gradually subsided. We expect the company's net profit for 2022-24 to be 2.51/384/486 million yuan, corresponding EPS to 1.44/2.21/2.79 yuan respectively, corresponding to the current PE valuation of 19.6/12.8/10.1 times, respectively. Referring to the valuation level of comparable companies and considering the scarcity of licenses held by the company, the company was given 25 times PE in 2022, corresponding to a target price of 36.03 yuan. Covered for the first time, giving a buy rating.
Risk warning: natural disaster risk, biological disease risk, food safety risk.
