Core view: “High-end cost performance” is beginning to show results. Long-term growth can be expected to be more cost-effective in the face of consumer trends, as well as the fragmentation of online e-commerce traffic and the double squeeze of offline snack stores. The company is transforming a “high-end cost performance” strategy to reduce brand premiums, achieve the competitive advantage of high quality combined with low prices, adjust supply chains and channels, and gradually transform manufacturing private brand retailers. The overall potential is beginning to emerge, and long-term growth can be expected.
Supply chain transformation: Drive full-link transformation, improve quality and efficiency to create a cost-effective foundation. The company uses the “one product, one chain” model to open up all aspects of internal procurement, production, OEM, operation, etc., to achieve “high-end cost performance”, and then apply online and offline channels.
Procurement side: Establish direct harvesting cooperation with major farms, superimpose domestic tree nuts instead, and continue to reduce costs on the raw material side.
Production side: From the past full OEM model to a “self-production+joint factory+OEM” composite production model, where self-production covers core nut categories to achieve production-side profit margins, joint factory construction quickly supplements the accumulation of production technology experience, and OEM covers diverse products and rapidly iterated snack food categories to meet the richness of the product system and rapid promotion of new products.
Delivery side: The company integrates across departments using the “one product, one chain” model to improve quality and efficiency in all aspects of the supply chain, and promote free shipping for single products, streamline logistics levels, and improve overall operational efficiency.
Channel transformation: building a brand online, making profit offline
Online: The company focused on the Douyin channel to achieve explosive growth, and used this to build a “Diao+N” omni-channel strategy to empower other channels. The current traffic dividends of traditional mainstream e-commerce have peaked. The company uses a hard discount model to achieve terminal cost performance, driving traditional e-commerce channels to resume growth from 23M6 and continue the growth trend.
Offline: The gift attributes for the Year of the Squirrel have been clearly established, and there is a brand and product foundation to expand daily sales. Currently, a differentiated product system is being built based on different terminal channels, and the offline distribution market space is expected to be further opened up in the future. Currently, offline channels continue to evolve, mass snack stores are taking over the growth. Under the trend of cost-effective consumption, Squirrel is transforming “national snack stores” and continuously optimizing store types, enriching store product systems and operating models, and building diverse competitive advantages.
Investment advice:
We expect the company's 2024-2026 revenue growth rates to be 44.5%, 31.1%, and 31.5%, respectively, and profit growth rates of 64.3%, 49.7%, and 48.0% respectively. The company has verified the growth potential of all categories under the “high-end cost performance” strategy, moving towards “20 billion in three years” supported by equity incentives. At the same time, the increase in scale, production side layout, and organizational efficiency is expected to steadily drive up net interest rates.
With a buy-A investment rating, the 6-month target price is 31.52 yuan, which is equivalent to a dynamic price-earnings ratio of 35X in 2024.
Risk warning: Market competition increases risk, new product development falls short of expectations, profit forecasts and assumptions fall short of expectations, food safety issues.