Incident: The company disclosed its 2019 semi-annual report. In the first half of the year, it achieved revenue of 2,493 billion yuan, an increase of 13.75% over the previous year, and realized net profit of 10.76 million yuan, a year-on-year decrease of 93.58%.
Domestic sales business is growing at a high rate, and category expansion and global supply chain layout continue to advance!
The company's profit declined sharply: on the one hand, short-term expenses increased sharply due to domestic business expansion. In the first half of the year, the company's total management expenses, sales expenses, R&D expenses, and financial expenses reached 253 million yuan, an increase of 43.75% (77 million) over the previous year; on the other hand, 30% of the shares in participating companies were transferred last year, achieving investment income of about 87.74 million yuan.
In the first half of the year, the company's domestic business developed rapidly, with a year-on-year increase of 68%; of these, Western-style fast food achieved revenue of 72.39 million yuan (+84.48%), and Yonghui channel sales of 51.61 million yuan (+1988.26%). At present, the company has completed the “eight regions and eight major warehouses” layout domestically. The channel sinking is progressing smoothly, and it is expected that the domestic sales business will continue to grow rapidly.
In terms of categories, the company's two crayfish production bases were successfully put into operation in the first half of the year, achieved crayfish sales revenue of 101 million yuan, and successfully deployed a new 100 billion yuan worth of large single products. In terms of supply chain construction, the company's layout in Southeast Asia and other places continues to deepen. In July, it signed an agreement to acquire shares in an Indian prawn processing company, and continues to advance in terms of global supply chain layout. In terms of overseas business, due to trade frictions between China and the US, the company's foreign revenue was 1,284 million yuan, down 11.15% from the previous year. However, the company has increased its expansion in the non-US market. In the first half of the year, the non-US market revenue was 396 million yuan, an increase of 32.94% over the previous year.
Industry opportunities: The rise of downstream catering, e-commerce, and new retail is driving big opportunities for the supply of high-quality aquatic products!
Currently, there are two major changes in downstream demand for aquatic products: first, large catering companies are growing at an accelerated pace, and demand for casual food and beverage consumption is growing rapidly; second, new retail with e-commerce platforms and offline boutiques at the core is accelerating its rise. Large catering companies and new retail enterprises have higher requirements for the product quality, supply stability, response speed, and product development capabilities of upstream suppliers, so that the advantages of leading aquatic product processing enterprises can be reflected, and leading fishery processing enterprises will usher in a period of good development opportunities.
Strategic transformation begins, occupying both ends of the smile curve: building a global aquatic products supply chain system!
In 2016, the company's strategic transformation began, based on two domestic and foreign markets, integrating high-quality aquatic product resources upstream to expand the company's categories; sinking downstream channels, vigorously exploring domestic B-side channels such as restaurants, e-commerce, and new retail, optimizing the company's channel structure and customer structure; optimizing the product side, developing and innovating for downstream B-end customers, and providing high value-added products. At the same time, the company has strengthened the control of the entire supply chain, created a global aquatic products supply chain system, and provided high-quality aquatic products to downstream customers. We believe that this transformation meets the supply chain needs of large high-quality customers such as large catering companies and new retail companies, and will greatly enhance the company's competitiveness and drive continued high growth in the company's revenue and performance.
Give a “buy” rating:
We expect that in 2019-2020, the company will achieve revenue of 54.41/64.36/7.502 billion yuan, net profit of 1.02/1.92/280 million yuan, same increase of -56.02%/88.24%/46.16%, corresponding EPS of 0.11/0.21/0.31 yuan, and PE corresponding to the closing price of August 15 at 36 times, 19 times, and 13 times, maintaining the “buy” rating.
Risk warning: raw material price fluctuations; channel expansion falling short of expectations; food safety risks; trade friction between China and the US.