Core point of view: the company is an established advantage enterprise in the northern quick-freezing industry, which has improved obviously in the past two years. At the operational level, the company has introduced the amoeba model to reform the internal organizational structure and assessment mechanism. At the same time, the chairman's full subscription plan shows confidence in the development of the company. At the business level, on the one hand, the main business of hot pot materials ushered in an inflection point under the new superposition mode, and the income of the main business is expected to shift to more than 20%. On the other hand, the company strengthens the development of the group meal market, and the supply chain business is expected to become a new growth point of the company. At the same time, the entry of raw material prices into the downward channel will drive the company's profits to be greatly improved, and we are optimistic that the industry dividend stack itself will drive the company to enter a new stage of growth in the next few years.

Company introduction: long-established quick-frozen famous enterprises to improve their management, fixed increase + equity incentives to stimulate vitality. The company is an old frozen meat products enterprise, located in Zhucheng, Shandong Province. it used to enjoy the reputation of "Beihuifa Nananjing" in the industry. its management has improved significantly in the past two years, and the internal organizational structure and assessment mechanism have been reformed. On the one hand, circulation business group, supply chain enterprise group and innovation enterprise group are set up to cultivate the channels carefully and assess them separately. On the other hand, the introduction of amoeba operation model, the implementation of the core backbone equity incentive plan to stimulate the vitality of employees. In addition, in August this year, the company launched a non-public offering plan to replenish flows and repay interest-bearing liabilities. Chairman Hui Xianyu's full subscription demonstrated confidence in the development of the company. After subscription, the chairman's direct shareholding increased to 26.42%, and the control was further enhanced.

Industry analysis: the hot pot industry has a bright future, and the group meal market is growing rapidly. The market size of China's frozen food industry exceeded 110 billion in 2018 and CAGR exceeded 12% in 2018-2018. Taking into account the rapid expansion of the hot pot industry chain, frozen hot pot products are expected to continue to grow rapidly, with a pattern of industry CR3 of only 16%, low industry concentration and obvious regional characteristics, mainly "South Fujian and North Shandong". In terms of the group meal market, with the continuous introduction of food and beverage standardization policies in recent years, China's group meal market has ushered in rapid growth, from 900 billion to 1.5 trillion in 2016-2019, with a CAGR of more than 18%. The regional distribution is mainly in East China and North China, but strong players have not yet been formed in the industry, and there is plenty of room for future market imagination.

Business analysis: the marginal improvement of the main business is obvious, and the group meal supply chain is growing rapidly. At the main business level, many positive changes have taken place in the company's main business of frozen hot pot materials in the past two years, including continuous optimization and upgrading of products, increasing the development of weak markets in channels, and improving operational efficiency through intensive cultivation. 80,000 tons of fund-raising projects in terms of production capacity have been put into production to form support for future expansion, while Huifa's new model empowers traditional dealers and improves sales performance by meeting the demand of one-stop purchase. The future will enter a stage of rapid expansion, driven by the above points, the company's main business will usher in an inflection point, and the future growth rate of main business revenue is expected to rise to more than 20%. At the level of new business, the company has been developing in the direction of catering and food supply service enterprises since 2018, opening up group meal supply chain business for hotels, school meals, etc., and the company has further strengthened the development of the group meal market this year, and has entered many cities across the country. the revenue in the first three quarters alone exceeded that of last year, and it is expected to enter a rapid volume stage in the future, opening up a new growth space for the company.

Financial analysis: the performance is flexible and the profit is expected to be greatly improved. From the perspective of performance, the company has performed steadily on the revenue side in recent years, and revenue growth has accelerated year by year from 2017 to 2019, but the profit side fluctuates greatly due to the impact of costs, mainly due to the 22% and 20% increase in chicken breast prices in 2018 and 2019, dragging down the company's 2019 gross profit margin to 17.7% and net interest rate to 0.41%. As chicken prices enter the downward channel this year, combined with last year's low base effect, we believe that the company's profits are expected to improve significantly, and the net interest rate is expected to return to the historic central level of 5%.

Investment suggestion: the company can improve the superimposed Huifa chef model to drive the shift speed of the main business of hot pot ingredients, and the new business of group meals is also expected to contribute to the increment. At the same time, the downward price of raw materials will drive profits to be greatly improved, and the company is optimistic that the company will enter a new stage of growth. From 2020 to 2022, we estimate that the company's revenue will be 15.37,20.12 and 2.62 billion yuan respectively, an increase of 27.02%, 30.92% and 30.23% over the same period last year, and the net profit will be 0.72,1.02 and 148 million yuan respectively, an increase of 1106.34%, 42.38% and 44.83% over the same period last year, and the corresponding EPS is 0.43,0.61 and 0.88 yuan respectively. We covered for the first time, giving a "buy" rating.

Risk tips: raw material price fluctuations, Huifa small kitchen B-end, C-end store expansion is not as expected risk, non-public offering schedule is not as expected risk.