Recently, we visited the Haitian flavor industry for research. The company's reforms and adjustments have achieved initial results. Internal executives and employees are more positive, the inventory pressure on external dealers has been relieved, and there is no risk that growth will return to growth. The subsequent low base may exceed expectations in the next quarter. The Fourth Five-Year Plan requires maintaining steady growth, while firmly laying out high-quality development, and emphasizes green products, green production, and green management. We maintain the 24-25 EPS forecast of 1.12 and 1.24 yuan, and the current stock price corresponds to 35 times PE in 24 years.
Recently, we visited the Haitian flavor industry to conduct research and exchange market concerns with management, such as the progress of reforms and the Fourth Five-Year Plan. We intuitively felt the positive changes within the company and the strength of its medium- to long-term strategy.
The internal state is improving, and the team's motivation is activated. Facing national business challenges and difficulties in the past two years, the most intuitive and profound change since the company promoted reforms was a positive shift in internal thought and status.
Management changed the relatively closed way of thinking in the past, denied and reflected internally from the top down, had a more open mindset, and placed more emphasis on learning from outstanding peers and companies across industries. The organizational structure is divided into multiple business entities, and the corresponding indicators and goals are more clear. The mentality of employees to preserve income from past droughts and floods has been changed, and team activity has been enhanced.
The results of the channel reform have been shown, and inventory is at a healthy level. Channel adjustment was a key task last year. Eight major sales companies were set up, and team vitality was stimulated using an independent management model. Some expenses were delegated to sales companies, which can be flexibly used for employee incentives or market investment, and can also plan and promote specialty products according to market conditions within the region. In response to customized needs, the company set up an agile department to respond quickly to avoid lost orders in the past. Back-end flexible supply chain support is currently in its infancy, and gross margin is expected to gradually increase after launch. For external distributors, the company prioritized inventory adjustments. The overall inventory trend has been declining since the beginning of the year. Currently, the national average inventory is at a healthy level.
The Fourth Five-Year Plan strives for steady growth, and has a firm strategy for high-quality development. During the Fourth Five-Year Plan period, the company requires steady growth, maintaining a reasonable growth rate and a healthy state of development. Every year, different categories have specific growth targets. At the same time, the company lays out high-quality development ahead of schedule, and has full strategic strength. In exchanges, emphasis is placed on green products, combining addition and subtraction, and achieving both delicious and healthy through R&D and technical support.
The company switched to green production and green management ahead of schedule. It will respond more calmly to changes in industry requirements in the future, which is also conducive to improving brand strength. Raw material costs will drop in 2024, and the company will increase investment in product quality and intelligent manufacturing to maintain a stable gross margin.
Investment advice: A return to growth is safe, focus on leading position opportunities, and maintain a “Highly Recommended” rating.
Haitian's reforms and adjustments have achieved initial results. Internal executives and employees are more active, inventory pressure on external dealers has been relieved, and there is no doubt that the company's sales will return to growth. A 12% growth target was fixed this year. Considering the subsequent low base, the quarterly growth rate is likely to exceed expectations. We maintain the 24-25 EPS forecast of 1.12 and 1.24 yuan, and the current stock price corresponds to 35 times PE in 24 years.
Risk warning: declining demand, rising costs, phased intensification of industry competition, etc.