The basic canned food plate is stable, and the coconut base is the main engine of growth

The predecessor of Happy Family was founded in 2001, started with canned fruit, and became the “Top Ten Excellent Brands in China's Canned Food Industry” in 2007. In 2014, the company launched squeezed coconut milk products, and gradually launched initiatives such as building a factory and putting into operation, inviting brand ambassadors, and introducing advanced production lines. In 2023, coconut juice revenue successfully exceeded 1 billion yuan, and launched thick coconut milk and “Coconut Shark” coconut water to seek new business growth points. In addition, the company is also stepping up on the raw material supply side to find suitable production sites to build a coconut juice processing plant in Vietnam. After implementation, it is expected to further enhance supply chain integration capabilities.

Canned food: Perception renewal dividends continue, leading brands concentrate on benefiting 1) Production in the canned food industry has declined, and the market size has grown steadily. In 2022, China's canned food industry produced 8.8973 million tons, down 2.49% year on year; in 2023, the fruit and vegetable processing market was 15.376 billion yuan, up 8.91% year on year. 2) The export market is expected to maintain steady growth, and the main factors in domestic demand growth are still changing consumer perceptions and cultivating consumption scenarios.

3) The CR12/CR5 of the fruit and vegetable processing market in 2023 was 27.6%/22.6% respectively. The competitive pattern is scattered, but the overall industry is concentrated at the top, with first-mover advantage and scale advantage as key factors. 4) The company has a clear price advantage for canned food products, and has a strong cost control advantage. At the same time, it has strong brand influence and a solid consumer base; it has recently launched a 200g snack channel for distribution, positioning it as lightweight, miniaturized, and casual, and is expected to expand.

Coconut base: Supply and demand are boosting growth, and supply chain integration is a trend 1) China's coconut liquid drink market is expected to be 16.890 billion yuan in 2023, an increase of 8.20% over the previous year. In 2022, the packaged coconut water processing market was 570 million yuan, up 3.64% year on year. 2) With market expansion and increased competition as the main line, it tests the enterprise's production-side integration and marketing-side product promotion capabilities as a whole. In terms of coconut juice, leading companies have a brand foundation. An important breakthrough point is the refined operation of channels to seize share, and there are relatively few differences between products. In terms of coconut water, all brands are small. The key is the integration of upstream resources and cost optimization to reduce the unit price of the product. At the same time, it is necessary to strengthen marketing publicity to strengthen consumer awareness and increase penetration rates. In terms of thick coconut milk, the category has been initially introduced, and each brand needs to increase production capacity to meet the customized needs of B-side customers. 3) In the early days when product homogenization was serious and brands competed, it was first necessary to build brand strength, stabilize consumer mentality, and form a unique perception of the product; combine strong channel power with product strength that can stand the test in the medium term; and rely on supply chain integration, which is the most difficult to replicate in the long term. Currently, Happy Home's coconut products are developing in the right direction, and we look forward to future results.

Multi-channel development promotes growth, and supply chain integration stabilizes production

1) Currently, the company is in a period of vigorous network development, and we look forward to increasing single-point contributions after expanding coverage. By the end of 2023, the company had 2157 dealers, an increase of 255 over the same period last year. By the end of 2023, the number of the company's active terminal outlets was about 700,000, an increase of 200,000 over the same period last year. The company strives to achieve the target of one million outlets in 2024. 2) The joint venture factory was replaced by a wholly-owned subsidiary to promote the construction of the factory and accelerate the purchase of land and plant buildings. After the completion of the company's overseas factories, the priority is to ensure the stability of raw materials and product quality. At the same time, it is expected to be beneficial to cost optimization and contribute a certain amount of revenue growth to the B-side business.

Profit forecasting

We believe that the company's investment logic is 1) After experiencing a round of consumer awareness refresh in the canned food industry, consumption frequency increased. On the basis of a steady increase in large-size canned products, 200g products are expected to contribute to the increase in the snack channel. 2) Coconut juice has broken through the second growth curve of 1 billion dollars. It has added 300,000 new outlets in the short term, and has enjoyed the dividend of increasing concentration as a well-known brand of coconut milk for a long time. 3) Coconut water has now entered the offline distribution stage. On the basis of guaranteed product strength, the brand positioning is clear. It has short-term ready-to-drink peak season catalysts, and enjoys long-term growth driven by industry expansion. 4) The launch of the Vietnamese factory is expected to facilitate cost optimization and upward supply chain integration, and on the other hand, guarantee the product strength of the B-side thick coconut milk business while also contributing to customer development and stability. We expect the company's 2024-2026 revenue growth rate +15.5%/+15.1%, profit growth rate +16.6%/+20.9%/+21.8%, EPS of 0.73/0.88/1.07 yuan respectively, corresponding PE is 19/16/13 times, maintaining a “buy” investment rating.

Risk warning

The construction of a factory in Vietnam falls short of the expected risks; the development of outlets falls short of the expected risks; the promotion of coconut water brands falls short of the expected risks; the development of major customers falls short of the expected risks; and consumer cultivation falls short of the expected risks.