Has the performance reached an inflection point?

“Investor Network” Zhu Jingkai

Soy sauce has long been an essential seasoning in the kitchen and the soul mate of delicious cuisine. Today, as the number one segment in the condiment field, it also attracts fierce competition from various manufacturers. In recent years, along with people's enthusiasm for the concept of healthy eating, soy sauce producers have also introduced concepts such as “green,” “organic,” and “zero additives.”

Two years ago, Qianhe Flavor Industry (603027.SH) received a lot of consumer attention due to the “soy sauce additive” incident, and after focusing on zero-added soy sauce, it has been popular in the market since then. However, as more and more soy sauce manufacturers are deploying “zero addition” products, Qianhe flavor's brand advantage is gradually being lost.

Net profit and revenue both declined in the third quarter

Recently, Qianhe Flavour released its report for the third quarter of 2024. The report shows that in the first three quarters of 2024, Qianhe Flavour's revenue was 2.288 billion yuan, down 1.9% year on year; net profit to mother was 0.352 billion yuan, down 9.2% year on year. Once again, there was a situation where both revenue and net profit growth rates declined.

At the same time, the performance in the third quarter of a single quarter was not as good as expected. Operating income was 0.699 billion yuan, down 12.63% year on year; net profit to mother was 0.101 billion yuan, down 22.58% year on year.

In terms of products, the two main products, soy sauce and table vinegar, both declined. In the first three quarters, soy sauce revenue was 1.435 billion yuan, down 2.44% year on year; vinegar revenue was 0.287 billion yuan, down 10.41% year on year; other business revenue was 0.36 billion yuan, up 12.9% year on year.

The Southwest Securities Research Report pointed out that as more and more manufacturers accelerated their entry into the market, competition intensified in the zero-additive condiment market, which affected the revenue of Qianhe flavor's core soy sauce business under pressure, and the growth rate declined.

In terms of channels, in the third quarter of 2024, distribution channels achieved revenue of 0.47 billion yuan, a year-on-year decrease of 17.3%; direct sales channels achieved revenue of 0.22 billion yuan, a slight decrease of 0.4% year-on-year.

As of September 30, the total number of Qianhe flavor dealers was 3,424. On June 30 this year, the number of dealers was 3,560. In the third quarter of this year, the company experienced a net decrease in dealers.

It is easy to see that the dividends brought by the company due to the “Haitian Double Biangmen” incident are gradually disappearing. In contrast, Haitian Flavour (603288.SH), which is at the head of the industry, has gradually emerged from the “haze” of the previous “double standard” public opinion, and its performance gradually picked up and grew. According to public data, Haitian Flavors achieved revenue of 20.399 billion yuan in the first three quarters of this year, up 9.38% year on year; net profit to mother was 4.815 billion yuan, up 11.23% year on year.

At the same time, Zhongju Hi-Tech (600872.SH) is also continuously catching up in the condiment field. According to the company's report for the third quarter of 2024, the company achieved revenue of 3.946 billion yuan in the first three quarters, a slight decrease of 0.17% from the previous year, and net profit to mother of 0.576 billion yuan, which turned a loss into profit increased by 1.849 billion yuan over the same period last year.

For the Qianhe flavor industry, not only is the gap with Haitian flavor getting wider, but it is also necessary to prevent other friendly merchants from catching up. It is worth noting that in the first three quarters of this year, the company's inventory reached 0.774 billion yuan, up 3.3% year on year, showing a trend of increasing year by year. This means that Qianhe flavor will face pressure to remove inventory, which may affect the company's future revenue and profit performance.

According to the company's financial report, from 2020 to 2023, the gross margins of Qianhe Flavors were 43.85%, 40.38%, 36.56%, and 37.15%, respectively. The company's gross margin for the third quarter of 2024 was 36.2%, showing an overall downward trend.

The “Qianhe 0” trademark is suspected of being misleading

In recent years, as soy sauce usage scenarios have become more and more diverse, manufacturers have launched soy sauce products with different functions, including those for cold mixing, those for children, and those that focus on low salt.

Previously, the owners of Qianhe Wei launched a series of “zero addition” products, thus gaining a lot of popularity. Recently, however, many consumers questioned the “Qianhe 0” logo owned by Qianhe Company on social media platforms.

Some consumers pointed out that the original “Qianhe 0” series, the company's signature product, was just a trademark name; it did not mean zero additives. The majority of consumers can't sit back. They think that the capitalized “0” on the product is ambiguous, and they feel misled by the manufacturer.

According to public information, as early as 2007, Qianhe Flavour proposed the “zero addition” concept and launched the first zero additive product in 2008.

According to the enterprise inspection platform, Qianhe Flavors Food Co., Ltd. has 339 trademark information. Among them, in September 2018, Qianhe Flavors applied for and successfully registered 30 types of trademarks such as “Qianhe Zero”, “Qianhe Zero”, “Qianhe Zero”, “Qianhe Zero”, etc.

In December 2018, Qianhe Flavors successively applied for trademarks with the words “Qianhe Zero Addition” and “Qianhe Zero Addition”, but none of them were approved.

Since then, in May and June 2020, Qianhe Flavors applied for and approved the registration of the “Qianhe 0” trademark. This is also a product that is currently well known to popular consumers. The packaging is marked with “Qianhe 0,” and the capital “0” is highlighted. It's hard for most consumers to tell that this is just a trademark.

Some industry insiders told “Investor Network” that judging from the trademark law, “Qianhe 0” is legal as a trademark itself, and is not deceptive or leading to misunderstanding. If a merchant uses the “Qianhe 0” trademark as a package for zero-added soy sauce products and advertises words such as “0 added” on the bottle package, this is suspected of misleading consumers.

Today, condiments that focus on functions such as “zero addition” and “salt reduction” abound on the market, such as Lee Kam Kee's Zero-Added Alcohol-Flavored Fresh Soy Sauce, Haitian Flavor's “Zero Additive” Gold Standard Soy Sauce, and Chubang's Zero-Additive Premium Light Soy Sauce. People are paying more attention to a healthy diet than ever before.

Looking at it now, the threshold for zero-addition technology isn't as high as it used to be. With the influx of producers, the competition on this track is getting fiercer. Perhaps in the future, in order to cater to the diversity of consumer tastes, soy sauce producers may launch more specialty flavors, emphasizing local culture and traditional craftsmanship to meet the needs of different regions and people.

We will wait and see if Qianhe flavor will continue to maintain its position as a leader in the zero-additive soy sauce sector.

Executives frequently reduce their holdings and cash out

In addition to the product line being continuously influenced by external influences, it seems that the company management itself is also showing a less optimistic attitude about the future condiment industry.

According to the enterprise investigation platform, the shareholding structure of Qianhe Flavors is quite concentrated, and the actual controller of the company is Mr. Wu Chaoqun, the chairman and general manager of the company. Currently, Wu Chaoqun's shareholding ratio is 40.67%, nephew Wu Jianyong's shareholding ratio is 9.16%, brother Wu Xueming's shareholding ratio is 0.79%, and the Wu family holds a total of 50.62% of the shares.

However, in recent years, many senior shareholders have cut their holdings and cashed out several times. In September of this year, Qianhe Flavors announced the results of executive holdings reduction. Company directors He Tiankui, Li Jin, and Director Lu Kelin reduced their holdings of 257,000 shares, 110,000 shares, and 107,500 shares respectively through centralized bidding transactions. The three reduced their holdings by a total of 474,500 shares. The price range for reduced holdings is 13.96 to 14.08 yuan/share, which is the recent high stock price.

As early as August 2023, the three shareholders mentioned above planned to reduce their holdings by 1.0321 million shares, 0.463 million shares, and 438,200 shares respectively, but in the end, they did not successfully reduce their holdings.

In December 2020, Wu Jianyong reduced his holdings by a total of 16.3439 million shares through centralized bidding transactions and bulk transactions, reduced his holdings in the price range of 33.62 to 39.3 yuan/share, and reduced his holdings by 0.587 billion yuan.

Since then, the company's stock price has continued to reach new highs, rising to 51.37 yuan/share in February 2021. However, since then, the stock price trend has fluctuated all the way down. Currently, the stock price is hovering around 13 yuan/share.

Furthermore, actual controller Wu Chaoqun began a path of reducing holdings during a period when the company's stock price was frequently rising. According to incomplete statistics, since 2020, he has reduced his holdings by tens of millions of shares, and the cash loan amount has reached hundreds of millions of yuan. During this period, in addition to actual controllers reducing their holdings, many shareholder executives also reduced their holdings and cashed out one after another.

It is worth noting that in July of last year, Qianhe Flavors issued a listing announcement, increasing the total rating of 0.8 billion yuan to actual controller Wu Chaoqun, and the final issue price was 12.82 yuan/share to promote the “intelligent condiment manufacturing project with an annual output of 0.6 million tons”. The funding source was that actual controller Wu Chaoqun passed a stock pledge. Prior to that, actual controller Wu Chaoqun had already reduced his holdings and cashed out hundreds of millions of yuan. This move was questioned by the market as “selling high and buying low,” and may harm the interests of small and medium shareholders.

Today, the company's stock price has entered a downward range, and the company's shareholders are instead intensively reducing their holdings. In the eyes of the outside world, the company's management may be concerned about future business. However, as a leader in zero-added soy sauce, I still hope the company can focus on its product line, actively expand categories such as vinegar and cooking wine, and have a better product matrix to drive the company's steady development. (Produced by Thinking Finance) ■