“Investor Network” Zhang Wei

In March, “First Stock of Bread” Taoli Bread Co., Ltd. (hereinafter referred to as “Taoli Bread”, 603866.SH) disclosed its 2023 report, becoming one of the first two A-share listed bakery companies to publish annual reports (the other is Nanqiao Food).

In 2023, Peach and Plum Bread achieved revenue of 6.759 billion yuan, an increase of 1.1% year on year; net profit to mother was 574 million yuan, down 10.2% year on year. Since 2021, the net profit of Peach and Plum Bread has been declining for three consecutive years.

Meanwhile, production capacity for peach and plum bread is still expanding. According to the annual report, as of the end of 2023, there were 5 production sites under construction for peach and plum bread, with a total design capacity of 224,300 tons, an increase of about 45% over its current production capacity (502,700 tons). It is worth paying attention to how peach and plum bread can absorb the new production capacity in the future.

“No increase in revenue, no increase in profit” in the past three years

According to company investigation information, Peach and Plum Bread was founded in 1997, and its founder is Wu Zhigang, a retired teacher. According to Baidu Encyclopedia, Wu Zhigang was born in 1935 in Liaoning. After the founding of New China, Wu Zhigang became one of the earliest university students in the country. After graduating from college, Wu Zhigang mainly worked in education until he retired at age 60.

Just when Wu Zhigang retired, the whole country was setting off a boom in entrepreneurship. Wu Zhigang also participated in it, set up a bread workshop, and named the bread brand “Peach Plum”. It originated from “The World Is Full of Peaches and Plums,” which is in line with his feelings of teaching and educating people. The highlight of peach and plum bread is that it only has a short shelf life of 5 to 7 days. This innovative way of thinking disrupted the bread industry's previous long shelf life model, and quickly opened up the situation for peach and plum bread.

In 1997, Shenyang Taoli Food Co., Ltd., the predecessor of peach and plum bread, was formally established. At the time, peach and plum bread was also the most famous bread brand in Liaoning. In 2015, Taoli Bread was listed on A-shares and became the “first bread stock”. Meanwhile, the 80-year-old Wu Zhigang became the oldest chairman of an A-share IPO company.

The listing became a “booster” for the development and growth of peach and plum bread. According to Dongcai Choice data, the revenue of peach and plum bread increased “one level a year” from 2,563 billion yuan in 2015 to 6.623 billion yuan in 2023. The revenue scale only increased and did not decrease during this period.

However, in the last three years, peach and plum bread “increased revenue without increasing profit.” In 2020, the net profit of Peach and Plum Bread reached 883 million yuan, the highest since the company went public. From 2021 to 2023, the net profit of Peach and Plum Bread was 763 million yuan, 640 million yuan, and 574 million yuan respectively, declining year-on-year for three consecutive years.

Haitong Securities believes that rising costs have put pressure on the gross margin of peach and plum bread, which will ultimately affect profits. According to financial data, from 2015 to 2019, the gross margin of peach and plum bread all exceeded 30%, of which in 2018 and 2019 it was close to 40%; in 2020 and later, the gross margin of peach and plum bread fell below 30%, and only 23% in 2023.

Production is still expanding due to insufficient capacity utilization

According to public information, in April 2019, Wu Zhigang resigned as chairman of Peach and Plum Bread, and his third son Wu Xueliang took over. After Wu Xueliang “took the helm” of peach and plum bread, he invested a large amount of money to expand production capacity. By the end of 2023, there were 22 production bases for peach and plum bread across the country, with a total production capacity of 502,700 tons. However, due to the decline in product sales, the production capacity utilization rate of peach and plum bread in all regions was insufficient.

Currently, seven sales regions for peach and plum bread are planned across the country, namely: Northeast China, North China, East China, Central China, Southwest China, Northwest China, and South China. Among them, Tohoku is the “base camp” for peach and plum bread. From 2015 to 2023, the average sales contribution rate from Tohoku was about 47% per year.

In 2023, Taoli Bread's revenue in Northeast China increased by -2.3%. This is the first time since the launch in 2015 that Tohoku's growth rate has been negative. In addition to the decline in revenue from the “base camp,” the performance of other regions of Peach and Plum Bread was unsatisfactory. The revenue increase in East China was 6.6%, a significant decrease from 34% in 2022; North China had zero revenue growth; and the revenue increase in South China was -14.6%, the biggest drop in the seven regions.

The decline in product sales has also left the operating rate of peach and plum bread insufficient. By the end of 2023, the average capacity utilization rate for peach and plum bread was 74%, with only over 80% in North China and Northwest China, and only 62% and 64% in East China and Central China.

Despite insufficient capacity utilization, peach and plum bread is still expanding production capacity. Currently, there are 5 production base projects under construction for peach and plum bread, including Guangxi, Changchun, Henan, Shanghai, and Foshan, with a total design capacity of 224,300 tons. After delivery of the above project, the current production capacity of peach and plum bread (502,700 tons) will increase by about 45%.

Taoli Bread said that the industry will face good development opportunities for a long time to come. The company needs to seize the opportunity at this stage to expand production scale through the implementation of project construction. On the one hand, match the growing demand of the market, maintain and expand market share, and on the other hand, expand production to form a scale effect, effectively reduce costs, raise the company's profit level, promote the company's rapid development, and further consolidate the company's position in the industry.

Weak stock prices, the company's market capitalization is 10 billion

According to public information, Peach and Plum Bread is already the largest bread production and processing enterprise with a short shelf life in the country, and its performance in the secondary market has naturally attracted investors' attention.

According to Dongcai Choice data, the issue price of Peach and Plum Bread was 13.76 yuan/share when it went public in December 2015, setting the highest price of 27.74 yuan/share by October 2020. Five years after the company went public, the stock price only doubled.

However, from the end of 2020 until now, the stock price of Peach and Plum Bread has been falling. By the close of trading on March 26, Peach and Plum Bread was reported at 6.36 yuan/share, down 17% in 2024, and the company's market value was 10.2 billion yuan.

In fact, not only is Peach and Plum Bread, but the stock price trend of its peers in recent years is not very impressive.

In 2015, Peach and Plum Bread became the first listed company in the baking industry. In the next six years, seven more baking companies were listed, namely Yuanzu Co., Ltd., Gui Faxiang, Guangzhou Restaurant, Sehmai Foods, Ligao Foods, Nanqiao Foods, and Qingdao Foods. Together, the eight companies mentioned above form the A-share baked goods sector.

Among them, Qingdao Foods was listed on October 21, 2021, and is the last bakery listed company so far. Starting with the listing date of Qingdao Foods, until the close of trading on March 26, six companies, including Taoli Bread and Ligao Foods, declined during this period. Only Yuanzu Shares and Qingdao Foods rose, rising 5% and 34% respectively.

Overview of the eight A-share baking companies

Chinese food industry analyst Zhu Danpeng said that currently there are many participants in baked goods, and the entry threshold is low. The bakery industry, which mainly focuses on bread, is still fiercely competitive, and the leading effect is obvious. Only enterprises with brand awareness and scale effects can continue to develop.

According to the revenue structure, the revenue of peach and plum bread mainly comes from bread and pastries. In 2023, bread and pastries accounted for 96.7% of revenue, while other products such as mooncakes and rice dumplings accounted for less than 4% of revenue.

Everbright Securities, on the other hand, believes that the overall consumption environment has yet to be repaired, so the revenue growth rate of the bread business is still under pressure. Looking ahead to 2024, the performance of peach and plum bread is expected to continue to improve as the company's new products are promoted and production capacity is implemented. (Produced by Thinking Finance) ■