Deeply involved in food brine for 34 years, leading the food brine industry. As a leading brand in the food and halide industry, Ziyan Foods has a stable shareholding structure and rich management experience. It was successfully listed on the main board of the Shanghai Stock Exchange in 2022.

The company's products are diverse, the basic market is stable, the market is concentrated in East China, and the nationalization strategy is progressing steadily.

Industry analysis: The food and sauce track has a large space and is steadily expanding. Currently, competition is scattered, and the concentration of leaders is expected to increase further. The scale of the halogen products industry grew from 233 billion to 369.1 billion yuan in 2018-2022, with a CAGR of 12.19%, and is expected to exceed 400 billion in 2023. Marinated food accounts for 64% of halogenated products in 2022. Compared with casual halogen, there are many individual food brine stores, the degree of standardization is lower, there are fewer large-scale and chain enterprises, and competition is more scattered.

Fresh products are the core products, and East China is a revenue bastion. The three-dimensional distribution structure helps the nationalization strategy.

In 2023, the company's fresh products accounted for 85.70% of the main business revenue, with revenue reaching 3.04 billion yuan, -1.71% year-on-year, and a four-year CAGR +7.51%. “Big Single Product” lung tablets for couples reached 1,099 billion yuan, or +0.46% over the same period, accounting for 31.36% of main revenue, and a four-year CAGR +9.48%; whole poultry, such as Baiwei Chicken and Ziyan Chicken, reached 800 million yuan, accounting for 25.09% of main revenue, and a four-year CAGR +5.04%.

By sales area, East China is the company's main sales region, accounting for 68.93% of revenue in 2023, with revenue of 2.447 billion yuan, -5.43% year-on-year, and four-year CAGR +7.63%; Central China/Southwest/ North China grew +0.93%/+9.46%/+8.04% year-on-year, accounting for 11.04%/8.93%/4.40% of revenue. Looking at each channel, Ziyan uses a two-level sales network structure of “company - dealer - terminal store - consumer”. The distribution model is the main sales model. The revenue in 2023 was 3.051 billion yuan, -2.68% year-on-year, accounting for 87.05% of the main business revenue, and a four-year CAGR +7.09%. The distribution model has led to a rapid expansion in the number of stores nationwide. The total number of stores in 2023 was 6205, +8.96% compared with the same period last year.

Future investment highlights: 1. Food and sauce are still growing, and the company has a strong logic of opening a store. Ziyan's nationwide store expansion continues to advance. The number of long-term stores can exceed 15,000, continuing to contribute to incremental revenue; 2. As costs decline, gross margin is expected to increase. Prices of the company's main ingredients, whole chicken and chicken side dishes, beef and beef side showed an overall downward trend, and there is room for an increase in gross margin this year.

Investment advice: We expect the company's 2024-2026 EPS to be 0.97/1.09/1.22 yuan. The current stock price corresponds to PE of 21X/18X/16X, which is covered for the first time and gives a “buy” rating.

Risk warning: fluctuating raw material prices, food safety, increased industry competition