Huifa Co., Ltd. is mainly engaged in the R & D, production and sales of quick-frozen meat products, including quick-frozen balls, sausages, fried products and string products. The company has formed a marketing network with Shandong as the center and covering the whole country. The company achieved revenue of 890 million yuan in 2016, + 6.3% year-on-year, and a net profit of 42.73 million yuan, down slightly from the same period last year. In terms of income structure, about 75% of income comes from pills and fried products.
Investment logic
Compared with Japan, frozen hot pot products are twice as likely: according to our estimates, the per capita consumption of quick-frozen hot pot products in Japan is about 3.08kg while that in China is about 1.26kg. According to the Japanese mature market as the industry ceiling, Chinese quick-frozen hot pot products are likely to double.
The concentration of the frozen meat industry is expected to increase: compared with the frozen rice noodle industry, the frozen meat industry has not yet formed a relatively clear market pattern, and there is a lack of leading national brands in the industry. the regional characteristics are obvious (Anjing has an income of nearly 3 billion yuan, Haiba King earns about 2 billion yuan, and Haixin and Huifa have an income of nearly 900 million yuan, and the brand concentration is relatively low). In the future, as the processing enterprises with backward production technology are being gradually eliminated, the market concentration is expected to increase gradually.
Product dual-brand operation, dealer-led channel continues to sink: Huifa divides the brand into "Huifa" series and "Zezhong" series for marketing, and the two brands are positioned in the popular consumer and halal markets respectively. The dealer model of multi-brand operation helps to achieve multi-channel coverage of product sales. The channel is dominated by dealers, and the company encourages dealers with good credit to become bigger and stronger, provide necessary guidance and coordination for dealers, and effectively improve dealers' loyalty to the company. In recent years, the company has gradually increased the sales efforts of the terminal direct sales model, paying attention to the direct sales of food and beverage terminals and expanding sales channels.
Investment suggestion
This time, the company plans to issue 30 million RMB common shares to the public, accounting for 25% of the total share capital after raising. The issue price is 7.63 yuan, and the net capital raised is expected to be 183 million yuan. It is mainly used for quick-frozen food projects with an annual output of 80,000 tons, marketing network projects and high-end three-dimensional warehouse projects.
We expect the new capacity to be completed in two years (the existing capacity is 110000 tons). We assume that the construction speed of the new capacity in the next 2017-2019 will be 20%, 70%, 100%, and the utilization rate of total capacity will be 65%, 70%, 80%, respectively. We estimate that the income from 2017 to 2019 will be 928 million / 1.18 billion / 1.45 billion yuan, and the profit will be 45.75 million / 59.83 million / 79.18 million yuan respectively. The corresponding EPS is 0.381 yuan / 0.499 yuan / 0.660 yuan respectively, referring to the 18-year valuation level of PE 22X of Anjing Food, the leader of quick-frozen hot pot meat products, the target price is 10.9 yuan.
Risk.
The progress of new capacity is not up to expectations / food safety risks / product sales are not as expected.