Zhaotai Securities released a research report stating that pre-cooked food has the potential to go through the market cycle in benchmarking against Japan, and looking ahead 20-30 years, pre-cooked food may become the sub-sector with the largest food growth space. China's frozen prepared food industry has large volatility, welcoming an opportunity cycle in 2018, and the prosperity level reached a short peak in 2020 before entering the "darkest moment" in 4Q23. Looking at the China dining supply chain cycle, the demand side closely follows the trend of raw material prices, closely monitoring prepayments and contract liabilities before the peak season. On the supply side, track the capacity release situation and wait for the clearance of low-quality capacity and the increase of industry concentration. After experiencing a three-year dividend over-raising and overinvestment, the industry's expansion rate is expected to slow down. After entering the "shrinkage era", small business financial pressure is highlighted and low-quality capacity is expected to accelerate clearance.

Status quo: A discussion of the supply chain cycle of China and Japan dining. Benchmarking against Japan, pre-cooked food has the potential to go through the market cycle, and looking ahead 20-30 years, pre-cooked food may become the sub-sector with the largest food growth space. Japan's frozen food BC grows with a relay, lagging behind the slowdown of the overall economy. China's frozen prepared food industry has large volatility, welcoming an opportunity cycle in 2018, the prosperity level reached a short peak in 2020 before entering the "darkest moment" in 4Q23.

Reason: Thoughts on the China dining supply chain cycle. 1) Demand side: The intensification of industry and the fragmentation of channels on the dining end have weakened the profitability and demand for orders of dining supply chain companies. The industry presents certain "counter-cyclic" characteristics, but there is still long-term penetration rate improvement opportunities. 2) Supply side: With the excess fundraising and investment of the times, and the overheat recovery expectations at the beginning of 2023 accelerated the expansion of the industry, high unit costs forcing the factories to "change volume for price". 3) Inventory side: Pig price trends affect dealer profit expectations, and manufacturers increase prices with the rise of pig prices during the peak season in previous years, with stronger channel inventory pressure. In 4Q23, there is no obvious rebound in pig prices, and there is a price war in the industry. Under the expectation of price reduction, there is a layered destocking throughout the entire supply chain.

Prospects: Tracking the China dining supply chain cycle. On the demand side: Follow the trend of raw material prices, closely monitor prepayments and contract liabilities before the peak season. On the one hand, the prices of meat such as pork reflect the terminal demand and consumer purchasing power, and basically change direction with the macro cycle and consumer recovery level. On the other hand, meat price trends affect channel expectations and thereby affect channel inventory. Considering that Q4 is the peak season for frozen products, prepayments and contract liabilities at the end of Q3 have a certain forward-looking guidance for fourth-quarter performance and downstream order demand. From the experience of leading companies, raw material prices and prosperity levels tend to change in the same direction. On the supply side: track the capacity release situation and wait for the clearance of low-quality capacity and the increase of industry concentration. After experiencing a three-year dividend over-raising and overinvestment, the industry's expansion rate is expected to slow down. After entering the "shrinkage era", small business financial pressure is highlighted and low-quality capacity is expected to accelerate clearance.

Risk warning: Macroeconomic fluctuations, worsening market competition, food safety issues, and research reports' use of public information may have lagging information or updates.