Investment points Target share price: HK $5.45
Well-known snack food manufacturer. The company is a supplier of many kinds of snack foods, especially in the market of jelly products. The company is the second-largest producer of jelly products in China by retail sales, with a market share of 10.3% in 2010.
Benefit from the healthy growth of the snack food market. Economic development, the improvement of the level of urbanization and the increase of per capita disposable income have promoted the rapid growth of consumption demand for snack food in China. Among them, according to Euromonitor, by 2013, the jelly market will reach 14 billion yuan, with a three-year CAGR of 13.2%. The market size of jelly drinks will reach 3.57 billion yuan, with a three-year CAGR of 17.5%. There are barriers to entry in the snack food industry, such as brand, marketing and channels, as well as product quality and R & D level, which will help the existing large-scale manufacturers in the industry to consolidate their market position, and the market concentration may be further improved. Among them, the share of the top five manufacturers in the jelly market has increased from 44.9% in 2008 to 48% in 2010.
The competitive advantage is obvious: brand, product and channel. 1) the company already enjoys high brand recognition, and will further enhance its brand image through multi-channel advertising strategies in the future; 2) the company has strong R & D strength and can continue to launch products that meet the needs of consumers' healthy eating life. 3) after listing, the expansion of distributors and distributors has accelerated, and in the form of key customer agents, key customers such as hypermarkets and chain stores with higher gross profit margins have been developed, and the share of sales of the latter has increased to 16.4% in 2011.
With the jump in production capacity, the company's development is expected to accelerate. The company will accelerate the layout of production capacity in Chengdu and other second-and third-tier cities. By the end of 2013, jelly production capacity will reach 315000 tons, an increase of 2.15 times over 2009. We expect jelly sales CAGR to be 24.9% in 2011-14, and the market leading position will be further strengthened; sweet products and other products will sell CAGR of 18.9% and 57.4%, respectively.
Risk factors. Increased market competition; food safety issues; rising prices of raw materials and labor costs.
Earnings forecasts, valuations and ratings. We expect the company's 2012 Universe 2013 EPS to be RMB0.25/0.31/0.39 yuan per share in 2014, corresponding to 13.2 Universe 0.6 PE in each year. Based on the comparable company valuation, combined with the PE Band and PB Band methods, we give 14 times HKD0.39 per share earnings per share as the base of PE to get HK$5.45 yuan per share. Give a "buy" rating for the first time.