The company released its 2014 report: In 2014, the company achieved operating income of 307 million yuan, an increase of 11.1% over the previous year; realized a total profit of 464.17 million yuan, an increase of 14.3% over the previous year; achieved net profit of 36.392 million yuan, an increase of 3.73% over the previous year; and achieved net profit of 28.821 million yuan after deducting non-return to the mother, a year-on-year decrease of 20.4%. The company's 2014 EPS was 0.13 yuan.
Brief review:
The growth rate of the company's revenue and net profit in 14 years is in line with expectations. We believe that the increase in the company's revenue is mainly due to increased market promotion efforts and implementation of new sales policies. 2014 coincided with the 30th anniversary of the company's establishment. The company launched new products such as Jialong's popular festival chicken powder, wife's cook chicken powder, and Jialong brand ketchup in a timely manner, and ensured rapid growth in the company's product sales revenue through increased marketing and promotion efforts and reasonable price adjustments to guarantee dealer profits. The company's expenses increased significantly due to 1) hosting the 30th anniversary celebration; 2) the increase in depreciation expenses after the fund raising project was consolidated; 3) the decline in bank deposits led to a decline in the company's interest income, an increase of 21.44% over the previous year. We believe that with the rapid growth of the company's future revenue, there is plenty of room for the company's expense ratio to decline. Furthermore, since the company did not pass the high-tech enterprise qualification certification in 2014, the income tax rate was adjusted from 15% to 25%, and income tax expenses increased by 81.3% over the same period last year. The sharp increase in the company's expenses and income tax expenses during the 14-year period caused the growth rate of the company's net profit to be lower than the revenue growth rate.
The company continues to improve its channel system and actively develops blank markets, and revenue can be expected to continue to grow rapidly in the future. In the past, the company has always paid more attention to the construction of catering channels. The catering channel is the company's main source of revenue. In particular, in regions such as Jilin, Liaoning, Beijing, Henan, etc., the company's market share in mid-range and high-end restaurants can reach about 70%. In recent years, the company has begun to gradually pay attention to the development of household consumption and food manufacturing markets. Through strategies such as speeding up the construction of supermarket channels for side food and setting up major customer departments to serve food manufacturers, etc., the company has increased its market share. Furthermore, the company is actively exploring blank markets based on the existing main sales area. We believe that with the support of the company's brand power and channel power, future revenue growth can be achieved continuously.
The company's products follow a differentiated strategy and continuously optimize the product structure, and there is a lot of room for improving future profitability. The company's operating costs increased 14% year over year due to increased discount sales in 2014, and the comprehensive gross margin fell 1.7 percentage points year over year. We believe that with the continuous optimization of the product structure, there will be a lot of room for improvement in the company's gross margin in the future. The company has always adopted a differentiated product competition strategy and adopted “mid-range price, mid-range and high-end quality” as the price policy. In addition, the company is also actively adjusting the product structure and price system, continuously expanding product categories and quantities, and dividing products into the three product levels of middle and low grade, middle and high grade to meet different market needs. In recent years, the company has been able to cultivate more than 2 new products every year, gradually breaking the company's dependence on chicken essence and chicken powder products, diversifying products, and ensuring the continuous growth of the company's revenue. Furthermore, the Guangzhou Jialong sauce production base project invested by the company with overraised capital is expected to be put into operation at the end of 2015. After the production base is put into operation, it will mainly produce high value-added products such as seasoning sauce, oyster sauce, and tomato sauce. At that time, the company's product structure will be further optimized.
Profit forecasting and valuation. We are optimistic about the future development prospects of the chicken essence and chicken powder industry. As the number one national brand in the industry, the company has a clear strategy in terms of brands, products and channels. With the gradual release of new production capacity and the emergence of economies of scale, the company will achieve relatively rapid growth in the future. Furthermore, as an advantageous enterprise within the industry, there is a high probability that the company will expand its scale and enrich its variety through outreach channels in the future in the context of increased concentration and mergers and acquisitions in the entire condiment industry. We expect the company's 2015-2017 EPS to be 0.15, 0.27, and 0.44 yuan respectively, CAGR of 71%, and 60 XPE for 2016, corresponding to the stock price of 16.2 yuan. The company's current stock price is too high and downgraded to a “neutral” rating.
Major uncertainties. Increased competition in the industry and food safety issues.
