occurrences

On the evening of July 27, Jiawo Foods issued an announcement regarding the signing of the “Convertible Bond Transfer Agreement” by the controlling shareholder. Jiawo Group, the controlling shareholder of the company, plans to transfer the principal amount of 62.5 million US dollars of convertible bonds issued by a holding subsidiary of the company held by Cangyuan Investment, as well as deferred interest payment bonds corresponding to this portion of the convertible bonds. At the same time, the two parties agreed that after the transfer transaction was completed, Jiawo Group would convert the claims into subsidiary shares. This move will effectively reduce the company's financial expenses and optimize its capital structure.

reviews

Debt-for-equity swaps reduce financial expenses, and performance flexibility is expected to be released. The company acquired Australis in 2019. The capital came from merger and acquisition loans, shareholder loans, convertible bonds, etc. After the acquisition was completed, the company's debt ratio increased. According to estimates, Jiawo Group's transfer of some convertible bonds will reduce financial expenses by about 10 million yuan, effectively reducing the size of interest-bearing debt and the balance to debt ratio. At the same time, the controlling shareholder transferred convertible bonds and converted shares, demonstrating recognition of the company's confidence in its development and long-term value. Furthermore, the company plans to further improve the balance and liability structure by promoting fixed increases and introducing strategic investors.

Under the tight balance between supply and demand, fish prices are expected to remain high for a long time. According to Urner Barry, the average price of salmon in the second quarter of 2022 rose 7.92% from the first quarter. The recent decline in fish prices is mainly due to seasonal fluctuations in fish prices during the year. As the fourth quarter ushered in the peak consumption season, salmon prices are expected to remain high throughout the year. The scarcity of farming licenses has determined that the industry's production capacity has been limited for a long time. Norges Bank expects supply growth of -0.7% in 2022; ABGSC predicts that salmon prices will rise when supply growth is less than 8.8%. Therefore, under a tight balance between supply and demand, fish prices are expected to remain high for a long time.

Continuously develop value-added products to create new highs in performance growth. At home and abroad, the company continues to launch multiple C-end product lines. Sales of value-added products reached 1,679 tons of WFE in Q1 2022, +18% year on year.

At present, the basic layout of the company's domestic supply chain has been completed. At the same time, the company continues to expand channels, and product sales are expected to increase. Recently, Jiawo Xiansheng launched a number of new products in the box, and there is no shortage of single products ranking in the list. The gross margin of value-added products is 2-3 times that of traditional business. By optimizing the product structure and increasing the proportion of high-value-added products, the company's performance is expected to continue to improve.

Investment advice

We expect that in 2022-2024, the company's net profit attributable to the mother will be 216/371/645 million yuan respectively, corresponding to EPS 1.24/2.13/3.71 yuan. Considering that salmon prices are expected to continue to rise and costs such as financial expenses and feed ingredients will gradually decline, we expect the company's performance elasticity to continue to be released to maintain the “recommended” rating.

Risk warning

Repeated outbreaks; salmon disease risk; food safety risk.