Core view: (1) The bird's nest industry continues to grow rapidly, with a compound growth rate of 35.7% in the past 6 years. Fresh stewed bird's nest and bird's nest+ have ushered in a new wave of demand. As a leading brand, the company is expected to be the first to enjoy the dividends of industry expansion. (2) Currently, the concentration of the bird's nest market is low. The total share of the top five bird's nest companies is only 11.9%, and there is still plenty of room for future market share growth. (3) The company's nationalization process has been accelerated. It already has 635 offline physical stores, and it is expected that market coverage will continue to be promoted through the omnichannel model.
Bird's nest contributed to stable income, and freshly stewed bird's nest grew rapidly. The company's main business revenue and gross profit mainly comes from sales of bird's nest products. Specifically, bird's nest products include bowl of swallow, freshly stewed bird's nest, rock sugar bird's nest, dried bird's nest and other products. Other products account for relatively low sales, including bird's nest rice dumplings and bird's nest mooncakes. Pure bird's nest products accounted for 94.7% of revenue in 2022, with bowl swallows accounting for the largest share of pure bird's nest products. In 2022, ****enerated revenue of 670 million yuan, accounting for 38.9% of pure bird's nest products. Wan Yan's sales revenue has continued to grow, but the overall sales share is declining. The main reason is that freshly stewed bird's nest products are more affordable and the product consumer base is larger. With the rapid development of e-commerce platforms and the increasing improvement of time-efficient logistics and distribution services, sales of freshly stewed bird's nest have increased rapidly.
Gross margin has increased steadily, and declining costs have increased gross profit. The company's gross margins in 2019-2022 were 42.7%, 48.2%, and 50.8%, respectively, and the comprehensive gross margin showed an upward trend. In 2020-2021, fresh stewed bird's nest manufacturers strengthened their marketing efforts. The online bird's nest consumer market faced strong competitive pressure. The company carried out promotional activities to appropriately reduce online product sales prices to respond positively to market competition. The company's comprehensive gross margin rebounded in 2022, mainly due to a decrease in the average procurement price of raw materials and a decrease in the company's promotional efforts.
Offline franchises are combined with online retail, and stores enhance consumer reach. After years of layout development, the company has gradually established an omnichannel sales model combining offline franchise and online retail. It is currently the brand with the largest number of physical stores specializing in bird's nest products in the bird's nest industry. Compared with a pure online sales model, an extensive offline physical store network can enhance consumers' brand awareness, enhance customer stickiness, and also make full use of dealer channels to expand the sales market and strengthen marketing promotion. The company is deepening the management of member resources, fully integrating existing customer and potential customer resources reached by physical stores to further enhance customer service capabilities.
Profit forecast and rating: The estimated net profit for 2023-2025 is 230 million yuan, 270 million yuan, and 320 million yuan, respectively, and EPS is 0.50 yuan, 0.59 yuan, and 0.69 yuan, respectively. The company was given an 18-fold valuation in 2024, corresponding to a target price of $10.62, corresponding to HK$11.67 at a 0.91:1 exchange rate. It was covered for the first time and gave it a “buy” rating.
Risk warning: Increased industry competition, product price fluctuations, food safety issues, changes in product import policies, exchange rate fluctuations, and online third-party platform revenue share a relatively high risk.