Losses are predicted to be around 30 million yuan in 2020
We expect the company's revenue to decline by about 20% year on year in 2020, annual net profit loss of about 30 million yuan, and revenue below market expectations, mainly due to the recovery of offline counter revenue below expectations; net profit is better than expected, mainly due to better-than-expected cost rate control.
Key points of interest
The 2H20 offline recovery is under pressure, and e-commerce performance is still impressive. According to our grassroots research, 2H20's offline business recovered season by quarter, but due to changes in consumer consumption habits due to the pandemic, offline business recovery in the second half of the year fell short of expectations. Revenue may still fall by about 15% year-on-year. There are about 170 2H stores. We expect to benefit from the strong performance of new cereal products and large single products of walnuts, sesame, and black soybean flour. The e-commerce market continued its 2Q growth trend in the second half of the year, with an increase of about 18% in 2019. Increased to 30%. Our grassroots research shows 2H20 company WeChat The channel basically continued its downward trend in the first half of the year. We expect it to be mainly related to the company's shift in its credit channel positioning from a sales platform to a brand promotion platform.
The performance of the new product is basically in line with expectations, and the development ideas are more steady. In March and June of last year, the company launched a new Y10 grain powder product and “eat a rainbow” high-end fruit oatmeal, respectively. Y10's main sales channel is offline. Our grassroots research shows that it accounts for 15-20% of offline revenue; the new cereal product, Double Eleven, sells about 500,000 bags, ranking in the top 5 of the Tmall cereal category. We expect that cereal will account for the company's revenue in the middle to high single digits throughout the year. However, considering the current level of competition in the cereal industry, the company's new product performance is basically in line with expectations. Future expansion ideas will be more stable, and they will continue to be upgraded The cereal product pursues steady growth and strives to become the company's second largest category in about 3 years. Furthermore, considering that large single products of sesame and black soybean powder are more explosive, the company said that under strategic changes in the 2021 cereal powder business or priority development of this product, revenue is expected to recover in 2021, increased brand investment and short-term pressure on profit margins, and considering long-term changes in consumption behavior, the company said that from 2021, it will gradually shift from the original offline channel-driven model to a brand and product-driven model. On the basis of consolidating cereal nutritional powders and offline channels, explore more possibilities for category and cross-channel development. For example, the company said that it is also strategically exploring new business models such as distribution models, home business, community group purchases, and group gift purchases, etc., and is expected to contribute to revenue growth in the medium to long term. We expect the company's revenue to increase 22% year-on-year in 2021. Among them, e-commerce is expected to maintain a year-on-year increase of about 30% year-on-year, and the offline business is expected to achieve high double-digit growth under a low base. 2H20, the company's gross profit margin is under slight pressure. At the same time, the company is under slight pressure to promote new brands. Net interest rate is low The number of units. Considering future increases in investment in new products and brands, we expect the company's net interest rate in 2021 may continue the 2H20 trend.
Valuation and recommendations
The company traded 25/17 times 2021/22 PE. Considering that cost control was better than expected, the net profit loss in 2020 is expected to be reduced by about 8 million yuan to about 30 million yuan, but considering that 2021 cost investment or exceeding previous expectations, the 2021 net profit forecast was lowered by 50%, and the 2022 net profit forecast was reduced by 77 million yuan. The target price was lowered by 12% to HK$0.75, corresponding to 28/19 times the 2021/22 PE and 12% 6 upward space, maintaining the outperforming industry rating.
risks
The impact of the epidemic has exceeded expectations, new product performance has fallen short of expectations, and cost investment has exceeded expectations.