Analytical judgment
Having been deeply involved in meat products for many years, the characteristics and brand meat products performed brilliantly. In 2020, the company faced the uncertain external environment of the development of the epidemic and actively developed online e-commerce channels. At the same time, the company continuously upgraded and innovated its products, expanding the product structure from relatively single ham products to specialty meat products such as ham, sausage, sauce, light bacon, bacon, and sausage. In the first three quarters of 2020, the company's performance was impressive, achieving operating income of 486 million yuan, yoy +188.97%; achieving net profit of 9.53 million yuan and yoy +94.79%. In terms of profitability, the gross margin of the company's ham and meat products business continued to be high in the first three quarters of 2020.
The product structure continues to be enriched, and new products are expected to become a new growth point for the company. The company operates ham, traditional meat products, branded meat, an online trading platform for meat, plant-based meat, etc. The product structure continues to be enriched, and the brand and technical advantages are obvious. In terms of the launch of new products, the company's newly launched products such as hot pot ham, light ham, and low-temperature sausage are healthy and nutritious, have a beautiful flavor, are easy to eat, and have a variety of uses. They are pioneering products in the industry, making a leap forward in ham consumption from additives to main ingredients and opening up a new development space for the industry. In terms of channel expansion, the company is making simultaneous efforts online and offline, entering many channels such as restaurants, hotels, food processing, and supermarket stores offline, and actively exploring new sales channels such as fresh e-commerce, community e-commerce, content e-commerce, and live streaming by influencers online. Simultaneous online and offline efforts help companies build diversified sales channels. Under the influence of the COVID-19 pandemic this year, offline channels have been affected to a certain extent, but the layout of online channels has helped the company maintain a rapid pace of growth. We believe that with the continuous enrichment of the company's product structure and the continuous layout of online and offline channels, the company is expected to make full use of its superior resources to create meat brand consumer products and embark on a new development journey of gold!
A downward trend in pig prices has been established, and falling costs increase profit margins
Pig procurement costs are an important part of the company's production costs. Stimulated by high profitability in breeding, the industry's enthusiasm to fill the list has increased dramatically, driving a rapid recovery in pig production capacity. According to data from the Ministry of Agriculture and Rural Affairs, the country's breeding sow production capacity achieved the first month-on-month correction in October 2019, and the year-on-year correction was achieved in June 2020; in October 2020, the number of domestic breeding sows reached 39.5 million heads, yoy +32%, recovered to around 88% at the end of 2017, 387 million pigs, and yoy +27%; in November 2020, the country's pig storage and breeding sow storage have all returned to more than 90% of year-round levels, with production capacity recovering very fast. With the transmission of downstream pig production capacity to pig storage, the downward trend in pig prices is quite clear, which is expected to further increase the company's profit margins.
Both consumption and industry upgrades promote the establishment of leading brands of traditional meat products
In the context of the major trends of consumption upgrading and industrial upgrading, Pyramid Ham has clearly defined the development position of making every effort to build a leading brand of traditional meat products. The first is consumption upgrading. After experiencing rapid development, the meat industry has entered a new stage. Consumer demand has changed from “nothing to nothing” and “from having to being excellent” to “from excellent to healthy”. Since the reform and opening up, Western-style meat products have developed rapidly and have become the main products consumed by meat products.
However, in recent years, with the upgrading of consumption, traditional Chinese meat products made from pure meat and using natural additives with rich and diverse flavors have become a new trend in people's consumption of meat products. The proportion has continued to rise, leading to a new growth in meat consumption. The second is industrial upgrading. There are currently no leading brands of traditional meat products in China. As China's economic development enters the “new normal” stage and supply-side reforms continue to deepen, the traditional meat products industry will accelerate integration and increase the degree of industrial concentration, thus completely changing the current “small but scattered” industry pattern.
In the process of industrial upgrading, large-scale enterprises with comprehensive advantages such as brand, technology, and channels will clearly benefit.
Investment advice
The decline in pig prices increases the company's profit margins, and the strength of new products is expected to become a new profit growth point for the company. We maintain our forecast of the company's EPS of 0.14/0.23/0.31 yuan respectively for 2020-2022. The PE corresponding to the current stock price is 43/26/19X respectively, maintaining the “increase in holdings” rating.
Risk warning
Food safety risks, the risk of uncertainty about the epidemic, and the decline in pig prices fell short of expected risks.