It covered Baoli Foods for the first time and gave it a purchase rating, with a target price of 19.60 yuan (based on 25 years 28 x PE).

As a B-side service enterprise based on Baisheng, Polaroid successfully made up for C-side shortcomings through business enablement and mergers and acquisitions. Both BC businesses had their own advantages (24Q1-3 accounts for 61%/39% of B-side and C-side revenue). B-side business (maintenance): Relying on more than 20 years of intensive cultivation, the company has become a leader in Western-style compound condiments. It has strong R&D strength and excellent service spirit. The basic business market is stable, customer accumulation is solid, and profit margins are relatively stable. C-side business (attack): Convenient fast food tests product innovation and brand building capabilities. The Kongke team has a mature understanding and operating experience of the C-side. It is expected to continue to gain revenue growth through new product creation & channel expansion, and the baking business is also flexible in volume.

B-side customized meal preparation: accelerate penetration, focus on R&D

The customized food preparation department is on the fast track. China's customized meal preparation market will exceed 40 billion in '21. We expect the market size to increase to 67.9 billion in '26, and the CAGR will be 11% in 22-26. The number and scale of enterprises in the industry are large and small, and R&D capacity and customer accumulation may be the key to industry competition. Polar's R&D investment is in a leading position in the industry, and has a solid accumulation of major customer resources such as Yum Sheng, and is expected to have a flywheel effect in the future.

C-end convenient and fast food: surging, leading the brand

Demand for home consumption stabilized after the pandemic, but convenient fast food still has the basic demand for specific scenarios such as travel and overtime due to its convenient attributes. The trend of diversification of fast food racetracks is remarkable, the importance of large single products is prominent. Empty pasta successfully seized users' mentality (market share of about 64% in '21), and C-side operation experience gradually matured. Expanding channels vertically and horizontally may be a common choice for fast food companies. The company continues to expand its product matrix and complete channel layout (making up for shortcomings in offline channels), and is expected to maintain its leading position.

How we differ from the market view

The market is concerned about the growth of the two major sectors. We believe that the company can expect multi-dimensional growth: 1) Western-style cuisine:

The Western food industry is booming, and the degree of product standardization is high. It has excellent growth in response to the Western food circuit (market size CAGR was 13% in 18-22), and the trend of domestic substitution is beginning to emerge, giving the company a broad space. In the medium to long term, the company's development potential lies in digging deeper into the two dimensions of old customers and developing new customers. The former is mainly to increase the share of the old customer system by continuously expanding categories, while the latter can rely on the lighthouse effect formed by major customer brand endorsements, and is expected to reach strategic cooperation with more small and medium-sized catering customers.

2) Light cooking fast food: On the basis of the phenomenal explosion of empty pasta, in the future, the company is also expected to continue to gain revenue growth through product category fission and comprehensive online and offline layout on the channel side.

Profit forecasting and valuation

We expect net profit to be 0.24/0.28/0.32 billion in 24-26, or -21.0%/+17.6%/+14.5%, corresponding EPS of 0.59/0.70/0.80 yuan. Referring to comparable companies' 25-year PE average value of 28x (Wind's consistent expectations), we will give them 25-year 28 x PE, with a target price of 19.60 yuan.

Risk warning: Demand for Western food is weak, competition for convenient fast food is intensifying, and production capacity investment falls short of expectations.