OEM model, e-commerce starts, and adjusts in a timely manner as traffic changes
Three Squirrels was founded in 2012 and is headquartered in Wuhu, Anhui. The company initially adopted an OEM model and cooperated closely with upstream suppliers. It entered the nut-based snack circuit through e-commerce platforms such as Taobao and Jingdong, and expanded into categories such as bakery, meat products, dried fruit, etc., and surpassed 10 billion dollars in revenue in 2019. Under changes in online traffic and changes in offline consumption preferences, the company actively adjusted: in 2022, the company put into operation its own factories such as Macadamia; gradually expanded offline distribution channels, laid out its own stores, and developed online live streaming channels such as Douyin; proposed a high-end cost-effective strategy in '23, and the results of the transformation can be expected.
Supply chain-based, proven by performance
Gradually strengthen production-side control, achieve supply chain collaboration, and help achieve high-end cost performance strategies.
At the end of 2022, the company took the lead in proposing a high-end cost performance strategy and bucked the trend at 23H2.
The company has independently built a manufacturing plant for the four core nut categories of daily nuts, macadamia nuts, pecans, and pistachios, and has officially put into operation, achieving a deep supply chain from raw materials to production and delivery. Furthermore, the company established a joint venture with Aolan International, one of the world's top 500 companies, to establish in-depth cooperation with Youxianpei, the world's largest leading cranberry brand, to further enhance product competitiveness, thereby providing consumers with more supply chain advantages and more high-end cost-effective products. The company is guided by market demand. Through the integration of all links and elements, the company achieves shorter links, more advanced tools, more collaborative organization, and higher quality products and more affordable prices.
The quarterly results exceeded expectations, and the transformation results were continuously verified. 24Q1's revenue was +92% year over year, with an increase of 1.75 billion yuan. We expect nearly 1 billion yuan to be Douyin's emerging channel, and mainly contributed by offline distribution channels; gross margin of 27.4%, -0.9 pct year over year; management rate 1.3%, -1.9 pct year on year; sales rate 16.3%, +1.1 pct year on year, mainly due to increased marketing expenses during the New Year Festival. The net profit margin for 24Q1 was 8.5%, -1.6 pct year on year, after deducting 7.2% non-net interest rate, and +0.04 pct year on year. The 24Q1 net interest rate remains flat under Douyin's volume. It is expected to be related to the company's layout of the upstream supply chain for nuts and the reduction of advertising for some brands. We expect the company's revenue to return to 10 billion yuan in 24 years, maintain a profit margin of 3-3.5%, and raise the net interest rate to 5% in the medium to long term.
Global Ecology Conference: Clear goals and clear paths
On May 29, the three squirrels held a global ecological conference in Shanghai. The company has anchored a three-year revenue target of 20 billion dollars including tax, and the development path is clear and full of confidence. 1) In terms of category: The nut category creates a brand foundation, and broadens category boundaries to help omni-channel operations. Implement a long-term layout to develop the nut/dried fruit category, with a total sales target of 13 billion yuan for three years, including 10 billion yuan for nuts and 3 billion yuan for dried fruit. The company has the world's largest nut processing park and a high-end cost-effective global supply chain, which is conducive to the layout of all product sizes, all sales forms, and all consumption scenarios to help omnichannel development. At the same time, the company continues to broaden category boundaries and proposes a “30” plan, namely 1 billion large single products, 10 suppliers over 100 million, and 10 investment supply chains. In three years, it aims at the “10 billion” target to achieve the number of sales points of 1 million+ online, 1 million+ offline, and 10 billion yuan in annual snack sales. Through full-link production transformation, direct delivery from manufacturers, and accurate insight into consumer needs, we are continuously deepening the ability to create single products and enhance the ability to operate all categories. 2) On the channel: Integrated product and marketing, and strengthened management to help short video e-commerce, distribution channels, integrated e-commerce, and offline stores make comprehensive breakthroughs and achieve efficient omni-channel development.
Investment advice: first coverage, giving a “buy” rating
Revenue for 2024-2026 is expected to be 104.07/138.91/17.745 billion yuan, respectively, with corresponding growth rates of 46.3%/33.5%/27.7%, and net profit to mother of 3.8/5.8/860 million yuan respectively. The corresponding growth rates are 71.0%/54.4%/48.3%, respectively. The corresponding PE is 25/16/11 times, respectively, covered for the first time, giving a “buy” rating.
Risk warning
Channel expansion fell short of expectations, raw material costs rose beyond expectations, and food safety issues.