Event: Longda Food released its 2022 annual report and 2023 quarterly report. In 2022, the company achieved operating income of 16.116 million, -17.4% year on year, net profit of 75 million yuan, +111.5% year on year, net profit of 148 million after deducting non-return mother's net profit of 148 million, +125.9% year on year. In the single quarter, 2022Q4 achieved operating income of 4.664 billion yuan, +17.1% year on year, net profit of 26 million yuan, +102.6% year on year, minus net profit of non-return mother of 59 million yuan, +106.5% year on year. 2023Q1 achieved operating income of 3.477 million, +4.1% year on year, net profit of 21 million yuan, -9.6% year on year, net profit of 23 million after deduction of net profit of non-return mother, -50.6% year on year. Net profit in 2022 turned a loss into a profit, mainly due to the reduction in losses in the farming business and the steady development of the slaughter and prepared vegetable business.
Revenue analysis: Diversified channel layout, full of momentum for prepared dishes.
In 2022 as a whole, the company achieved revenue of 16.116 billion yuan, -17.4% year on year (Q1: -45.7%; Q2:
-22.0%, Q3: -5.9%, Q4: +17.1%) 2023Q1 achieved revenue of 3.477 billion, +4.1% year on year. 1) By product: Revenue from frozen meat was 12.03 billion (-12.6%) in 2022; revenue from cooked food products was 3.4 billion (-6.2%); revenue from prepared dishes was 1.31 billion (+11.2%); income from import trade was 1.61 billion (-57.4%); other revenue was 8.2 billion (+93.8%). The overall revenue contraction for fresh frozen meat was mainly due to the low level of pig prices in the first half of the year, African swine fever and the impact of the epidemic. As pig prices recovered at the end of the year, the slaughter business came under heavy pressure to control slaughter volume. The scale of prepared dishes is growing rapidly and full of momentum. The revenue growth rate is superior to that of the food processing business and the company's overall performance. The company is mainly focusing on this business to create large products in the 100 million yuan and 10 million yuan range. The revenue from 2023Q1 prepared dishes was 458 million, +71%. 2) Sub-channel: In 2022, the company decided on a channel strategy with B-side as the main and C-side as the supplement, and diversified the channel layout across the country. In 2022, the company's distribution channel revenue was 12.746 billion (-13.63%); direct channel revenue was 3.37 billion (-29.10%).
In 2022, the company had a net increase of 105 dealers to 8955. 3) By region: Shandong achieved revenue of 5.972 billion (-11.95%) in 2022; other regions of East China achieved revenue of 5.440 billion (-23.86%); Central China 2,156 million (-8.08%); North China 740 million (-12.05%); South China 282 million (-48.99%); Northeast China achieved 690 million (-8.51%); Southwest China's 732 million (-23.24%); Northwest China and others had revenue of 103 million (-22.08 million). Construction of new projects in Guanyun, Bazhong, and Hainan has begun one after another, which is expected to improve the national layout.
Benferry analysis: 22Q4 turned a loss into a profit, and an increase in the proportion of prepared dishes is expected to increase profitability.
1) Gross profit margin: In 2022, the company achieved a gross profit margin of 4.0%, a year-on-year rate of +2.2 pct, a net profit margin of 0.5%, and a year-on-year rate of +3.8 pct. 2023Q1, company gross profit margin 4.7%, year-on-year +1.0pct, net profit margin 0.6%, year-on-year -0.1pct. 2) Expense rate: The sales expense rate in 2022 was 1.1%, the year-on-year rate was -0.1pct, the 2022Q4 sales expense ratio was 0.8%, and the year-on-year rate was -0.7pct. The 2023Q1 sales expense ratio was 1.2%, -0.2pct compared to the previous year. The management fee rate in 2022 was 1.7%, +0.2pct year on year, the 2022Q4 management fee rate was 1.6%, the year-on-year -0.7pct, and the 2023Q1 management fee rate was 1.9%, +0.0pct year on year.
The cost rate remained stable during the company period.
Outlook for 23 years: Develop a main strategy for prepared food, promote diversified channel layout, and steadily expand new production capacity.
Looking ahead to the whole year, 1) Product side: The company continues to promote the main food strategy with prepared dishes as the core, focusing on building a series of fat and intestines products, establishing a core single product system, and striving to achieve this series of revenue of 250 to 300 million yuan or more by 2023. Strictly control costs in the aquaculture sector, rationally adjust production capacity support, and reduce the impact of cyclical fluctuations. Continue to innovate new products and processes in the slaughter sector, improve the product structure to increase gross profit margins and provide good basic support for the food sector.
2) Channel side: Continuously promote diversified layout. On the big B side, we will deepen cooperation with big customers, and strive to achieve the goal of increasing old customers by more than 30% in 2023, while also developing new restaurant chains or Western-style bakery enterprises with strong growth in the middle and medium sector. In the small to medium B side, continue to expand the number of dealers, optimize the customer structure, and cultivate a core distribution system. The number of dealers specializing in prepared dishes is expected to exceed 1,200 in 2023; on the C side, online+offline two-wheel drive.
3) Production capacity side. In 2023, new plants such as Guanyun in Jiangsu, Bazhong in Sichuan, and Yangpu in Hainan will be put into operation one after another. In the future, the company's annual pig slaughter capacity will reach 15 million heads and the production capacity of prepared vegetables will reach 330,000 tons/year, thus supporting continued revenue growth.
Medium- to long-term outlook: The supply and demand sides are working at the same time, and the prepared dishes sector has great potential.
On the production side, the company has vigorously cultivated the prepared dish sector, continuously introduced professional R&D teams, and formed a separate remuneration incentive policy for the prepared dish sector. The new production of the Adda plant and the Pakistan-China plant are expected to greatly enhance the expansion potential of other meat products and support the development of prepared dishes. The company has adopted a “integrated two-wing” development strategy to increase the layout of prepared dishes. The growth rate of the prepared dish business is expected to maintain double-digit growth, and net interest rates are expected to increase accordingly. On the demand side, demand for prefabricated semi-finished products and finished products continues to expand. Against the backdrop of the deep transformation of the slaughter industry, the upgrading of meat product consumption, and the rise of prepared dishes, the potential demand market continues to expand. The company is expected to rely on the advantages of full supply chain integration and first-mover advantages of large customers to enjoy leading dividends and seize market share.
Profit prediction and valuation: We are optimistic about the future prosperity and growth of the prepared food industry. The company has advantages in product quality, channel customers, and supply chain capabilities. Further increase in the number of hundreds of millions of individual products in the future can drive the company's overall gross margin increase in the long term. The aquaculture and slaughter sector business is expected to grow steadily next year. We expect the company's revenue growth rate to be 10.5%/20.8%/11.2% in 2023-2025, and net profit growth of 35.5%/125.0%/20.5%, giving it an increase in holdings rating.
Risk warning: promotion of new prepared dishes fell short of expectations, recovery in pig production capacity fell short of expectations, risk of African swine fever epidemic, food safety issues, etc.