Key points of investment
A leader in high-end plastics and biodegradable products, which is expected to be successful in 2024, Jialian Technology is a leading enterprise in high-end plastic products and biodegradable products, covering many well-known enterprises at home and abroad. The company's products are highly recognized in the market, and downstream customers are of high quality, including foreign supermarkets and restaurant giants such as Ikea, Walmart, and Amazon, as well as domestic first-tier restaurants and tea brands such as Pizza Hut, Michelle Ice City, and Naxue.
Benefiting from the continuous development of new customers and the continuous expansion of categories, the company's revenue scale increased from 948 million yuan to 1,976 billion yuan in 2018-2022, with a CAGR of 20.16%. According to the company's performance forecast, it is expected to achieve net profit of 0.42 to 53 million yuan in 2023, -70.43% to 76.57% year-on-year. The pressure on the company's revenue and profit performance in 2023 was mainly affected by factors such as weak demand for export sales, inventory removal from downstream customers, and impairment of the collective goodwill of some acquired companies. It is expected that the performance will soon recover as overseas inventory is digested and driven by the rapid release of domestic sales orders.
The export scale of plastic products has increased dramatically in recent years. Tea takeout has catalyzed domestic demand growth. On the supply side, China's plastic product production is relatively stable. For most of the past ten years, China's plastic products production ranged from 70 to 80 million tons. On the demand side, production capacity was drastically withdrawn due to the overseas epidemic in 2020, and the mismatch between demand and supply stimulated the shift of global orders to China. The export volume of plastic products increased dramatically in 2020-2022, and declined slightly in 2023 due to factors such as inventories. In terms of domestic sales, the takeout and ready-to-drink markets are expanding, driving up domestic demand for plastic tableware. At the same time, there is a clear trend in the domestic restaurant industry. In 2020-2022, the proportion of more than 5,000 brand stores on China's current tea drinking circuit increased significantly, while at the same time, the proportion of stores within 10 stores declined sharply. Leading plastic products companies are favored by chain brands due to product quality compliance and stable delivery. Along with the increase in the market share of the chain brand industry, leading plastic products companies have also achieved full growth.
The export business is expected to recover in 2024, and domestic sales are expected to continue to increase in domestic sales: the company's domestic sales business is growing rapidly. In 2018-2022, the company's domestic sales revenue increased from 67 million yuan to 451 million yuan, and the CAGR reached 60.96%. Looking ahead to 2024, the company's downstream core customers such as Michelle Ice City, Lucky Coffee, Hi Cha, and Nai Xue will continue to accelerate. We expect to open more than 1,000 stores in 2024.
The company has strong stickiness with customers, fully benefiting from the expansion of downstream customer channels, and the company's domestic sales order growth is still expected to accelerate further. At the same time, the company's domestic sales business is expected to continue to grow rapidly in 2024 due to the gradual expansion of new cooperative customers, the continuous development of new customers, and increasing its share within existing customers through category expansion.
Export sales: As of December '23, sales of US essential goods wholesalers were US$359.556 billion, +1.56% year-on-year. Demand for overseas essential products continued to recover after August '23. The inventory sales ratio for US wholesalers is 0.93, which has dropped to a historically low level. Since October '23, the year-on-year growth rate of China's plastic products export value has continued to recover. As of December '23, the export value of China's plastic products was 10.884 billion yuan, +2.63% year-on-year. Taking into account the recovery in overseas demand and the pace of customer inventory replenishment, we determine that the company's export orders may have rebounded in December '23. We are optimistic that the company's export business will see a significant recovery in 2024 due to recovery in demand and customer inventory replenishment. At the same time, category expansion+supply chain optimization for major export customers and removal of intermediaries helped the company further increase its share of old customers and promote the growth of the company's export business.
Profit forecasting and valuation
The company is a leading enterprise in high-end plastic products and biodegradable products. Its downstream customers cover many domestic and international food, tea and other giants. Considering that the company's domestic sales business benefits from the rapid expansion of downstream tea customers and the increase in share among old customers+development of new customers, it is expected that the rapid growth trend will continue. The export business benefits from a recovery in overseas demand and the replenishment of stocks from major overseas customers, and the company's expansion of categories plus an increase in share within major overseas customers is expected to recover in 2024. We expect the company's 2023-2025 revenue to reach 16.91/21.89/ 2,711 billion yuan, respectively, -14.42%/+29.45%/+23.84%; net profit to mother 0.94/1.52 billion yuan, 47.79%/+61.93%/+32.91% year-on-year, corresponding to the current market capitalization of the company's PE of 33/ 21/ 15X, respectively, covered for the first time, giving a “buy” rating.
Risk warning
Overseas business policy risks, the risk of large fluctuations in raw material costs, the risk of large fluctuations in the RMB exchange rate, the risk of business contraction of original customers, and the development of new customers falling short of expectations, etc.