On August 31, 2024, Tianwei Foods released the 2024 semi-annual results report.

Key points of investment

Market competition intensifies, and the decline in raw materials is beneficial to gross profit

The company's 2024H1 revenue was 1.468 billion yuan (up 3%), net profit attributable to mother was 0.247 billion yuan (same increase 19%), and net profit not attributable to mother was 0.21 billion yuan (same increase of 18%). 2024Q2's revenue was 0.614 billion yuan (down 7% from the same period), mainly due to weak catering channels and increased market competition in the second quarter. Net profit to mother was 0.071 billion yuan (same decrease of 11%), net profit not to mother was 0.063 billion yuan (same increase of 6%). On the profit side, 2024Q2's gross margin increased by 2 pct to 33.33%, mainly due to a decrease in raw material procurement costs and refined control. Sales/management expenses were reduced by 1 pct/1 pct to 10.70%/6.85%, respectively. Subsequent companies plan to invest part of the cost savings into channels and terminals. Sales expenses are expected to increase marginally in the second half of the year. Taken together, the net interest rate also increased 0.3 pct to 12.41%, and is expected to maintain a stable level throughout the year.

Hot pot ingredients and recovery are under pressure, and food extract growth is improving

By product, 2024Q2's revenue for hot pot condiments was 0.198 billion yuan (same decrease of 23%). Revenue from handmade hot pot ingredients declined during the off-season. Hot pot ingredients are currently in a transition period of iterative upgrading in the second quarter. New products are currently selling well. Thick hot pot continues to boost the brand, leading the iterative upgrading of other series, and positioning large products at the 0.5-1 billion yuan level in the medium to long term.

2024Q2's Chinese food seasoning revenue was 0.392 billion yuan (same increase of 5%). Among them, the performance of sauerkraut fish was under pressure, mainly due to less new product development and reduced investment by off-season companies; in the first half of the year, crayfish achieved the same increase of 20% under a low base, and the company achieved good marketing performance through continuous layout of large single products and multi-flavor development; the company formulated targeted promotion strategies in the second half of the year, which is expected to marginally increase the volume of Chinese cuisine. By channel, 2024Q2's offline channel revenue was 0.492 billion yuan (same decrease of 15%). As of the end of 2024H1, the company had a total of 3150 dealers, a net decrease of 15 from the beginning of the year, mainly due to the decline in the catering channel; online channel revenue was 0.122 billion yuan (same increase 57%), of which food extract contributed the main increase. Currently, the food extract strategy still focuses on online. Through production capacity expansion/channel sorting, etc., the success rate of new product launches has increased, and the performance continues to improve.

Profit forecasting

As a leader in the multi-modulation circuit, the company continues to consolidate the competitiveness of hot pot ingredients and Chinese polymodulation through product promotion. At the same time, it also relies on food extracts to make up for the shortcomings of small and medium-sized online B-end customers. With endogenous epitaxial two-wheel drive, it is expected to fully gain market share. According to the semi-annual report, we adjusted the 2024-2026 EPS to 0.49/0.56/0.60 (previous value was 0.52/0.65/0.77). The current stock price corresponds to PE 19/17/15 times, respectively, maintaining a “buy” investment rating.

Risk warning

Macroeconomic downturn risks, consumption recovery falling short of expectations, increased industry competition, regional expansion falling short of expectations, capacity construction or utilization falling short of expectations, etc.