The first listed company in the sauce and sauce industry, embarks on a new journey under the “531” plan. Huangshanghuang was founded in 1999 and listed on the Shenzhen Stock Exchange in 2012. After listing, the main focus was on steady management and internal regulations. In 12-16, the company's overall expansion pace was slow, and its business scope was concentrated in the Jiangxi, Guangdong and Zhejiang markets.

The company's transformation and upgrading in 2017: faster store expansion, increased personnel incentives (share/option incentives plus management shareholding), enhanced brand image, and clarified organizational structure. At the same time, the “531” long-term medium-term plan and the “Thousand Cities, Ten Thousand Stores” strategic layout were formulated in 2020. Affected by the epidemic in 2021-2022, Huangshanghuang's single store revenue was severely damaged, the closing rate increased, and the “531” plan process was blocked. Beginning in 2023, in the context of the slow recovery of the industry, the company continued to advance the “Ten Thousand Cities, Ten Thousand Stores” strategic layout (proposing to open 2,000 + stores every year in the future, and use 3-4 years to bring the total number of stores to 10,000 or more), and provided support for store expansion in terms of capacity layout and option incentives.

Look at the industry: In the process of increasing concentration, focus on demand recovery & cost pressure improvement. Looking at the current stage of development, we believe that although the large-scale development of casual halogen products is earlier and faster than food preparation, the industry is currently still in the process of increasing annual concentration at an accelerated pace, and leading brands continue to increase store coverage. On the revenue side, in 2020-2022, due to the “epidemic+economic pressure”, single-store revenue continued to decline. Since 2023, the recovery process has been slow, and single-store performance has not returned to 2019 levels. Looking at the cost side: Under the pressure of 2021-2023Q1 duck side costs, the gross profit/net profit side of companies in the industry is under pressure. After reaching an all-time high in April 2023, duck side prices entered a downward trend, and began to be cashed out to the reporting side in 23Q3, and the gross and net margin ratio was sufficiently elastic upward.

Look at the company: anchor the original intention, and continue to advance the strategy of thousands of stores in a thousand cities. 1) Current situation: There are many empty markets, and there is still room for improvement in profitability: the Jiangxi/Zhejiang/Guangdong market, 23H1 accounts for 84% in total, and there is huge room for store expansion. Furthermore, we believe that as the company's store layout continues to be encrypted and new production bases are put into use, the scale effect is expected to decrease, capacity utilization is expected to increase, and there is still room for improvement in profitability; 2) Looking at the benchmarks: We have reviewed the amazing store expansion process from 2010 to 2015. We believe that the main reasons for achieving rapid regional expansion are: 1, supply Chain first; 2. Perfect franchise management system, high store expansion efficiency (high store survival rate in the first year; store survival rate is high, closing rate in new regions is basically below 10%); 3. Store expansion environment is healthy and has a strategic vision; 3) Outlook: We believe that the company's expansion direction is clear, and “motivation+management+production capacity” support is sufficient. In terms of development direction, the company focuses on “deep cultivation of the old market+expansion of key new markets around the new base”. In terms of cooperative franchisees, the company attaches importance to business cooperation to improve the efficiency of store expansion. In terms of incentives and support, the company's goal of opening new stores in 2023 is consistent with the strategy of thousands of stores in thousands of cities, which is expected to stimulate employee enthusiasm. In terms of production capacity layout, the company has now put into operation six major production bases in Jiangxi, Guangdong, Fujian, Liaoning, Shaanxi and Chongqing, and plans to raise an additional 450 million yuan in September 2023 to build a new base in Zhejiang+Hainan, providing a guarantee for distribution and supply in key market expansion while saving logistics costs.

Profit forecast: We expect the company to achieve revenue of 19.21/23.03/2.67 billion yuan in 23-25 years, -1.70%/19.92%/15.94%, and net profit to mother of 0.71/1.55/ 205 million yuan, +129.05%/119.31%/32.21%, EPS 0.13/0.28/0.37 yuan/share, respectively, and PE 66/30/23x, respectively. Covered for the first time, giving it a “Recommended” rating.

Risk warning: Store expansion falls short of expectations, raw material prices rise, industry competition intensifies