Summary of the report
Company overview
The company sells dried seafood, marine leisure products and frozen seafood in China, as well as algae and fungus food. The market for the company's products is extremely fragmented. In 2016, the company was the main player in China's dry seafood market, with a market share of 0.93%, while the market share of algae and fungus products, marine leisure products and frozen seafood products were 0.74%, 0.32% and 0.01%, respectively.
The company's sales channels include: supermarkets, trading companies, convenience stores, and the sale of frozen seafood through the seafood wholesale market. The company has 56 sales representatives and 207 sales staff, covering 9 provinces and 3 municipalities directly under the Central Government in China. The main sales locations of the products are Fujian and Guangdong Province, and expand to the northern and central and western regions of China. The company's suppliers include fishermen, algae product farmers and enterprise suppliers and employ subcontractors to handle raw seafood and algae products. The company has 203 kinds of products.
FY2014-16, the company's revenue increased from RMB205 million yuan to 468 million yuan, CAGR about 51.2%, gross profit increased from 47.9 million yuan to 118.4 million yuan, CAGR was 57.2%, gross profit margin remained basically stable, 23.4%, 25.6%, 25.3%, respectively The net profit increased from 26.5 million yuan to 61.2 million yuan, the CAGR was 52.0%, and the net interest rate was basically stable at 12.9%, 15.2% and 13.1%, respectively. Due to the low base in 2014, the year-on-year growth rate in 2016 was lower than that in 2015.
Industry status and prospects
From 2011 to 2016, retail sales of dry seafood in China increased from 29.4 billion RMB to 41.4 billion RMB,CAGR to 7.1%. Retail sales are expected to reach 6.5% CAGR in 2017-2021 and 56.7 billion RMB in 2021. Retail sales of dry seafood are expected to be 6.6%, 6.4%, 6.8% and 7.0% in the northern, southern, central and western regions and other regions from 2017 to 2021. In 2016, the company ranked first in the industry in terms of retail sales, with a market share of 0.93%.
From 2011 to 2016, retail sales of algae products in China increased from 22.7 billion RMB to 35 billion RMB,CAGR to 9.0%. Retail sales are expected to be 8.0% CAGR from 2017 to 2021 and 51.4 billion RMB in 2021. Retail sales of algae products are expected to be 8.2%, 7.9%, 8.0% and 8.3% in the northern, southern, central and western regions and other regions from 2017 to 2021. The market concentration of algae products is stronger than that of dry seafood, and the total market share of the five major market participants is 11.01%.
Advantages and opportunities
Large and stable supply of high quality raw materials
Experienced sales and promotion team and a large number of loyal customers
The management team is experienced through a large and rich product portfolio complemented by a growing and attractive product line.
Weakness and risk
The risk that the stability of natural raw material supply is affected by environmental changes.
Vulnerable to fluctuations in raw material prices
Business development depends on brand advantage and reputation, but brand reputation is easily affected by product quality control, raw material pollution, environmental pollution, logistics and so on.
Valuation
The prospectus did not disclose the 2017 performance forecast. At HK $0.59 to HK $0.84, it corresponds to a fully diluted price-to-earnings ratio of 8.4-11.9 times for fiscal year 2016. Although this valuation is low in consumer stocks, we believe that the company is small, the business sales are mainly distributed in Fujian and Guangdong markets, and the industry is highly dispersed, so we believe that there should be a discount in valuation. We give IPO a dedicated rating of "4".
