Incident: Recently, Haodangjia released its report for the third quarter of 2019. The company achieved operating income of 920 million yuan in the first three quarters of 2019, an increase of 1.70% over the previous year; net profit attributable to shareholders of listed companies was 53.4671 million yuan, an increase of 3.64% over the previous year. Basic earnings per share were 0.04 yuan/share.
Comment:
Q3 performance declined slightly year over year, but remained at an all-time high for the same period. Q3 The company's revenue was -12.15% year on year, the composite gross profit margin was 23.36%, the previous year was -3.18pct, and the net profit of the mother was -10.71%. The company's operations have obvious quarterly characteristics. The Q3 business mainly focuses on frozen food, marine products, and fishing business. Among them, the frozen food business is relatively stable and its gross profit is relatively low. Compared with the same period last year, the Haishin industrial products and fishing business declined somewhat compared to the same period last year, which was the main reason for the year-on-year decline in Q3 company performance.
Q3 The company's fishing business sold 27,500 tons, a year-on-year decrease of 6.59%, and the sales volume of marine products was 1,049,700 tons, a year-on-year decrease of 36.37%. The main reason was that in the third quarter of last year, due to the impact of high temperature and the reduction in production of sea cucumber, the company's sales of salted sea cucumber (a part of the marine product business) increased sharply year-on-year. It is also normal for the third quarter of this year to decline from the same period last year. It is worth noting that if we look at the lengthening of historical years, the company's performance in the third quarter of this year was high compared to the same period in history. A new ocean squid fishing boat was put into operation last year, and the sea cucumber market continues to be in short supply this year, indicating that the company's main business has reached a new historical level
The new nursery is expected to be put into operation, and the sea cucumber farming business will expand and strengthen. Since 2018, the company has invested in building a 400,000-square-meter modern sea cucumber nursery. At the end of the reporting period, the balance of the company's North Nursery plant under construction was 70.8841 million yuan, of which the new investment in the third quarter was 30.2701 million yuan. We estimate that the company's new nursery project had been completed by the end of the third quarter, and it is expected that it will be put into operation within the year. We believe that the construction of the new nursery will bring three benefits to the company. First, it will greatly increase the company's production capacity for cultivating sea cucumbers; second, it will help the company improve breeding efficiency, and unit costs are expected to decrease while increasing production; third, it will drive an increase in the sales performance of seedlings. Currently, the company's breeding technology is mature and the amount of seedlings raised can be sold abroad, which is expected to bring considerable revenue to the company. Currently, the company has a cultivation area of 50,000 mu of sea cucumber weir, which far exceeds that of its peers. Moreover, with the impact of the commissioning of a new nursery on improving the efficiency of sea cucumber farming, the company's sea cucumber production has great potential to increase.
The sea cucumber industry has been booming for a very long time, and policy-catalyzed valuations are expected to recover upward. Currently, the wholesale price of sea cucumber in the Shandong Weiwei Seawater Products Wholesale Market has risen to 210 yuan/kg, reaching a high of nearly seven years. After the high temperature incident occurred last year, we pointed out that the impact of high temperatures and production cuts in Liaoning will be huge, and the industry will enter a long period of prosperity. Similar to the pig industry, the concentration of the sea cucumber farming industry is low. While most farmers have suffered losses from high temperatures and production cuts, capital chain conditions and farming confidence are difficult to recover in the short term. According to the average growth cycle of sea cucumbers of two years, we expect that the production reduction gap caused by high temperatures in 2018 for sea cucumbers in Liaoning will be filled and returned to normal as early as 2021. There will be an approximately equal supply gap every year in the 2019-2020 fishing season, and the industry boom is expected to continue until the 2020 fall fishing season. Furthermore, the outbreak of non-plague has drastically boosted domestic meat prices, and the upward space for the sea cucumber boom is expected to expand further. The rise in sea cucumber prices is highly correlated with the company's profit, but the company's stock price performance is still weak since last year's price increase. This may be related to the rebuilding of investor confidence and the early recovery in the company's performance growth rate. The recent good performance of the market may be due to policy catalysis. On October 18, the Ministry of Agriculture and Rural Affairs issued a document on banning fishing in the Yangtze River Basin. We believe that the fundamentals of the company and industry have been improving for a long time. Currently, with policy catalysts as an opportunity, sector valuation is expected to enter an upward recovery period.
Earnings forecast and ratings: We expect the company's diluted earnings per share for 19-21 to be $0.05, $0.07, and $0.10 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.
