Key points of investment

Focusing on oats for 30 years, we have deployed large health fields in the medium to long term. Seomai Foods is owned by the founder Xie Qingkui family and focuses on R&D, production and sales of healthy grain foods represented by oats. The founder of the company, Xie Qingkui Family Holding Company, has a stable shareholding structure; the management has rich industry experience. On the revenue side, the company's revenue CAGR exceeded 10% in 2019-2023. Protein powder was launched in recent years, and the strategic merger and acquisition of Desai Kanggu is moving towards the health sector; on the profit side, due to rising oat grain prices and fierce external competition, profitability has been under pressure in recent years. It is expected that in the future, as costs decline, the company's profit margin will be repaired.

The oat industry is small but beautiful, and there is plenty of room to increase the share of leading players. Breakfast cereal products, such as oats, have been recognized by Chinese consumers for their rich nutritional content. According to Euromonitor data, the 2023 breakfast cereal market had sales of 9.56 billion yuan, and the 2018-2023 CAGR was 4.8%.

It is expected that the aging population, healthy diet, and casual oat snacks will jointly drive the continued expansion of the oat market. Looking at the market pattern, the CR3 of China's oat industry was 51.3% in 2023, and there is still room for improvement compared to overseas concentration.

Seamak's entire industry chain has been laid out, channels are being expanded in multiple ways, and its leading position continues to be consolidated. 1) Channel side:

The company works hard on traditional channels, creates a benchmark market by focusing on key regions, and ensures the company's good presentation and sales in terminal channels by constructing key products, key cities, and key counties.

For emerging channel companies, keep up with offline trends and lay out mass sales channels for snacks to develop new business growth poles.

In 2023, the company's offline snack channel increased by more than 180% year-on-year, and the rapid development of snack sales channels drove the company's new offline business volume. E-commerce channel companies have reached the top of e-commerce sales on mainstream shelves, while continuing to develop e-commerce platforms for interesting content. In 2023, Seamak's Douyin GMV surpassed 0.3 billion yuan, a year-on-year increase of more than 70%. According to Datayes! According to data, Seamac achieved sales of 0.23 billion yuan on the Douyin channel 2024H1, an increase of more than 170% over the previous year, and maintained strong growth. 2) Supply chain:

The whole wheat industry chain layout, with a global oat production area, has an exclusive green oat farm in Australia, an organic oat base in Zhangbei, China, and a green oat base in Hulunbuir; with production bases nationwide, it has four major production and R&D bases in Hezhou, Guangxi, Dingxing, Zhangbei, and Jiangsu Suqian. The company uses the whole industry chain and scale advantages to ensure the quantitative and price stability of raw material supply.

Outreach and endogenous efforts are being made to move towards a long-term layout in the field of health. The company accelerated the pace of product layout in the health sector and launched a protein powder category in 2023. At the same time, it acquired Chengdu Desai Kanggu Food Co., Ltd. in 2024 and entered the dairy cereal formula circuit. The company invigorates new and epitaxial mergers and acquisitions in the health sector and has been anchored as a leader in the oat grains and health food industry for a long time.

Profit forecasting and investment ratings: Seymak's main food industry seizes share in the oat industry by expanding channels and developing new products with dual-wheel drive; the epitaxial merger and acquisition layout is looking for new growth on a healthy circuit. We expect the company's revenue for 2024-2026 to be 2/2.43/2.87 billion yuan, +27%/21%/18%, and the estimated net profit to mother will be 0.12/0.16/0.2 billion yuan, +6%/33%/25%, corresponding to PE 23X, 17X, and 14X, respectively. There is still room for the company's valuation compared to other snack food companies in the same industry. It was covered for the first time, giving it a “buy” rating.

Risk warning: Prices of raw materials fluctuate greatly, growth in core products and new products developed to meet expectations, food safety risks.