Key points of investment:
A condiment company from Zhongshan, has gone through changes and is ready to go. The company's main business is the production and sale of condiments. The core category is soy sauce, gradually forming a multi-category product matrix. In 2023, Torch Group and its co-actors returned to the position of largest shareholder, completed the restructuring of the board of directors and the appointment of a new management team on 23H2, and began comprehensive reforms and adjustments.
Three-year strategic planning and implementation of 24-year restricted stock incentives. Looking at quantitative goals, both point to the goal of “reinventing a new kitchen state to achieve high quality development”. They not only propose growth targets of about doubling the scale of delicious food or consolidated revenue, but also aim to increase operating profit margins.
Promote comprehensive transformation to improve quality and efficiency. In terms of cultural philosophy and talent management, we inject market-based concepts, strengthen assessment and incentives, and adopt a four-batch talent mechanism. In terms of channel regional expansion and support, channel services are strengthened, nationalized expansion is promoted, promotion expenses are optimized, and efficiency is maximized. In terms of product and category reshaping, we implement product classification, improve the structure, and at the same time seek epitaxial development, achieve category collaboration, and strengthen research and development. Future products will be led by following the trend. In terms of supply chain and operational efficiency, lean operation management is optimized, and supply chain processes are comprehensively sorted out. Through various reforms, we strive to achieve a sharp increase in quantitative profit performance, thus achieving the goals of the three-year strategic plan.
Focusing on the main condiment business, it is planned to gradually divest the non-main business. The condiment business is the core source of the company's revenue and profit, while other businesses have no correlation between assets and condiments, and all are gradually shrinking and idle assets. If the divestment can be carried out smoothly in the future, not only can idle assets be revitalized, but the main condiment business is expected to further promote the release of the company's intrinsic value. Pay attention to the disposition of potential non-main business and assets and minority shareholders' rights in the future.
Profit forecast and valuation: Without considering condiment mergers and acquisitions and the recovery of Chubang's minority shareholders' interests, net profit for 2024-26 is predicted to be 760 million, 970 million, and 1.25 billion, respectively, with year-on-year changes of -55%, +29%, and +29%, respectively. The current stock price corresponding PE is 24x, 19x, and 14x (2024/6/26 closing price), respectively. Zhongju Hi-Tech was given about 30 times PE in 24 years, and given a target market value of 22.7 billion yuan. There was room for an increase of about 26% from the closing market value on June 26, 2024. It was upgraded from an “increase in holdings” rating to a “buy” rating. In the future, we still need to pay attention to potential issues, including land revaluation due to real estate divestments, mergers and acquisitions, and the recovery of minority shareholders' rights.
The catalyst for stock price performance: Foreign port market expansion exceeded expectations, non-condiment business and asset divestment exceeded expectations, and profit margins exceeded expectations due to supply chain and operation reforms.
Core hypothetical risks: marketing reform results fall short of expectations, non-condiment business and asset divestment fall short of expectations, food safety risks.