Event: The company released the main operating data for the first quarter of 2019.
Comment:
The company released operating data for the first quarter of 2019:
1) Frozen prepared food (2018 revenue of 395 million yuan, accounting for 34.34%, gross profit margin 4.26%): 2018 production was 23,700 tons, a year-on-year decrease of 0.95%, sales of 23,300 tons, a year-on-year decrease of 6.10%. Production in the first quarter of 2019 was 4634.63 tons, an increase of 6.76% over the previous year, and sales volume was 5169.71 tons, an increase of 11.44% over the same period.
The company's frozen prepared food is mainly exported to foreign countries. This business is constrained by the global economy and trade situation. Affected by the Sino-US trade war and the slowdown in global economic growth in 2018, the company's frozen food business fell under pressure and picked up in the first quarter of this year. We expect the company's frozen prepared food business to maintain a steady growth rate in the future.
2) Fishing products (2018 revenue of 446 million yuan, accounting for 38.83%, gross profit margin 15.70%): 2018 production was 248,400 tons, an increase of 200.47%, sales of 199,000 tons, and an increase of 155.66%. Production in the first quarter of 2019 was 19,300 tons, up 8.76% year on year, and sales volume was 46,000 tons, up 127.17% year on year. In 2018, 8 new seafaring squid fishing boats were added and put into operation. The company's performance increased markedly. In the first quarter of this year, there was a slight year-on-year increase in catch production, indicating that the new production capacity in the fishing business has entered a stable production period, and the short-term growth rate is stabilizing. Looking at the medium to long term, we believe that with the rapid development of pelagic fishing and the increasingly strict management of the industry, the company's fishing business is growing, and its market share is expected to continue to increase.
3) Haichang Industrial Products (2018 revenue of 248 million yuan, accounting for 21.56%, gross profit margin 18.02%): 2018 production was 305.52 tons, up 17.55% year on year, sales volume was 329.58 tons, up 23.16% year on year. Production in the first quarter of 2019 was 31.95 tons, up 26.53% year on year, and sales volume was 47.67 tons, down 16.41% year on year. The main reason why sales and revenue of the company's marine products continued to grow steadily in 2018 is that the reduction in production of sea cucumber in Liaoning led to a tightening of industry supply. In the third quarter, driven by demand from downstream sea cucumber product processing companies to replenish inventory, the company's sales of semi-finished sea cucumber products (sea cucumber products after initial processing of fresh sea cucumber) increased dramatically. As inventory continues to be removed, sales of Haisheng products declined somewhat in the first quarter. We expect that as the boom in the sea cucumber industry continues, the growth rate of the company's marine products business is expected to pick up.
4) Fresh sea cucumber (2018 revenue was 162 million yuan, accounting for 14.09%; we estimate gross profit margin of 34.05%): 2018 production was 2892.67 tons, down 27.22% year on year, sales volume was 2892.67 tons, down 27.22% year on year. The first quarter of 2019 was during the hibernation period of sea cucumbers, and production and sales were 0. The decline in the company's fresh sea cucumber revenue in 2018 was mainly due to the high temperature reduction in sea cucumber production in Liaoning that affected the further tightening of industry supply and demand. The price of sea cucumber caught in autumn reached a relatively high level in the fourth quarter. Stored sea cucumber had a clear price advantage over fresh sea cucumber. The release of inventory led to the blocking of fresh sea cucumber sales. Beginning in the third quarter, China participated in large-scale purchases of semi-finished sea cucumbers at low prices, further exacerbating the industry's high inventory pressure, which in turn caused fresh sea cucumbers to be priceless during the fishing season. The company's fresh sea cucumber business adopts a market-based model. The harvest volume is determined by the demand of downstream processors. Due to the high pressure to remove the industry's inventory, the company's fresh sea cucumber production and sales in 2018 were under some pressure. Spring fishing prices for South Sea ginseng are high, and inventory removal is relatively fast. It has some guiding significance for northern sea cucumbers that have just entered the spring fishing season. As industry stocks continue to be removed, supply and demand in the industry continue to be tight, and fresh sea cucumber prices and sales will gradually pick up upward. We expect the company's fresh sea cucumber harvest to return to around 35 million tons in 2019, with an average annual foreign sales price of about 140 yuan/kg.
Earnings forecast and ratings: We expect the company's diluted earnings per share for 19-21 to be $0.06, $0.08, and $0.09 respectively. Maintain an “increase in holdings” rating for the company.
Risk factors: extreme weather risk, risk of product price fluctuations, scale expansion falling short of expectations, channel expansion falling short of expectations, risk of policy changes, etc.
