I. Incident Overview
Recently, we investigated Junyao Health and communicated with management about the current development status of the industry and the company's operations.
II. Analysis and Judgment
Main business: Product upgrades combined with channel expansion and increased concentration of room-temperature lactic acid bacteria: Industry costs increased significantly in 2021. The brand strength of some small and medium-sized enterprises was insufficient to support price increases and faced greater operating pressure, providing objective favorable conditions for the company's regional expansion. We believe that the company will increase market share and extend the product life cycle through the three dimensions of product upgrade, channel expansion, and cost expansion. Category upgrade: The company previously faced the problem of product aging, the large lactic acid bacteria drink “Flavors Dynamics”. In 2021, it will launch a variety of new beverage products focusing on functionality and health to promote category expansion and upgrading. Channel expansion: At present, the company's channel adjustments are nearing completion. In 21Q1, there were 1,184 Deodorant dealers, -4% over the previous month. This year, the company will focus on increasing channel expansion and penetration in the equilibrium market. The number of dealers is expected to increase year-on-year in 2021.
New product: Room temperature cheese+probiotic functional food, contributing to the second growth curve. The company positions the “big health” strategy. In 2021, it will actively explore the second growth curve from the two major directions of cheese and probiotic food. Room temperature cheese: In April 2021, the company launched room temperature cheese, which clearly differentiated competition from competing products. 1) The product perspective positions high calcium, low sodium, probiotics, and is deeply tied to the well-known IP “Kung Fu Panda”; 2) Channel perspective, room temperature cheese has a wider range of channels and more sales forms, including cashier hanging bars, shelf lines, freezing point displays, etc.; 3) From the company's perspective, we believe that the company can replicate the successful experience of the room-temperature lactic acid bacteria category and use the advantages of existing channels to achieve rapid release of the cheese category. Currently, product terminal sales and channel stocking are performing well. Probiotic functional foods: In April 2021, the company launched two probiotic chewables, which focus on fighting against Helicobacter pylori and preventing and improving alcoholic liver degeneration and liver damage. The company cooperates with Jiangnan University and has strong competitiveness in terms of scientific research strength. As the aging trend of the domestic population worsens, health foods and functional foods have broad room to grow.
Outlook: 2021 may be an inflection point in performance, and future growth can be expected. We believe that the company's performance in 2021 is expected to stop falling and pick up, leading to an inflection point in performance, mainly due to: (1) Main business recovery: The company actively adjusted policies in the room-temperature lactic acid bacteria market this year. On the one hand, it promoted category upgrades and expansion, and on the other hand, increased investment in matching channel expansion, superimposed IPO production capacity will gradually be released after the end of 2021. It is expected that the main business revenue in 2021 will basically return to 2019 levels, and the compound growth rate for the next 3 years is expected to be higher than the industry average (15%) left and right). (2) New product release: In 2021, the company launched room-temperature cheese and probiotic functional foods to enjoy the industry's high growth dividends. However, at present, new products are still in the energy storage period, and the increase in short-term contribution performance is relatively limited. We look forward to the rapid release of new product performance dividends after 2022.
III. Investment advice
The company is expected to achieve revenue of 12.57/14.98/1,78/1,798 billion yuan in 2021-2023, compared to +47.6%/+19.1%/+20.1%; to achieve net profit of 2.72/3.26/395 million yuan compared to +27.0%/+20.2%/+20.9%, equivalent to EPS of 0.63/0.76/0.92 yuan, corresponding to 43/36/30 times PE. The company's valuation is 24 times higher than the average valuation of comparable companies in the beverage industry in 2021 (Wind's consistent expectations, arithmetic averaging method). Considering the future contribution of new categories to the second growth curve and the increase in performance brought about by the upgrading and channel expansion of old categories, it was covered for the first time, giving a “careful recommendation” rating.
IV. Risk Alerts
Sales of new products fell short of expectations, channel expansion fell short of expectations, food safety risks, etc.
