Fuling Mustard (002507) 2019 Interim Review: A Historical Perspective on the Fundamentals of the Company
Investment Highlights: In the first half of 2019, the company’s revenue growth decreased significantly.
In 20191H, the company realized revenue of 10.
8.6 billion yuan, with annual value added2.
07%, an increase of 32 units downgraded from the same period last year, and the increase in revenue has increased.
In terms of quarters, since 20181Q, the company’s gradual momentum of quarterly revenue growth has begun to show.
Among them, the increase rates of 20191Q and 20192Q were 3 respectively.
94% and 0.
54%, showing that revenue growth has further weakened since the second quarter.
In 20191H, the company’s cash inflow of goods sold was 10.
9.3 billion, with a previous appreciation of 2.
05%, which is generally consistent with the income data, confirms the fact that revenue growth is not good.
By product, the current mustard income was 9.
24 ppm, an increase of 3 in ten years.
3%, accounting for a slight increase of 1 percentage point in revenue, the trend of slowing growth is consistent with the overall trend.
In addition, the income of new mustard soy sauce also recorded 3.
As a core product, the revenue of pickled vegetables has increased positively. The first half of the decline in revenue was pickle and appetizer substitute products.
In terms of sales regions, sales in the North and Central China markets have shrunk sharply, while East China, Southwest, Northwest, and export markets have achieved substantial growth, and the Northeast market has maintained better growth.
We expect that through the implementation and implementation of the company’s active sales strategy, sales in the second half of the year should be improved compared to the first half, and we will reduce the sales growth rate to 5%.
In the first half of 2019, the rapid increase in revenue echoed the increase in accounts receivable, confirming that the company’s product sales did encounter some resistance, and the process of channel sinking was more difficult than expected.
As of June 30, 2019, the company’s accounts receivable increased by 68% for many years.
Considering that the company increased the speed of distribution in third- and fourth-tier cities in the first quarter, we judge that the company’s products are currently precipitating in the channel, and due to the increase in the speed of credit to dealers, the company’s repayments have generally slowed down.
The company’s investment in sales has increased significantly.
In 20191H, the company’s sales expense ratio reached 21.
15%, an increase of one year.
Among them, Guangxuan promotion costs increase by 24% every two years, and sales staff budgets increase by 50% every two years, but logistics costs decrease by 16% each year.
The logistics expenses can better reflect the situation of sales landing. Although it can be seen that the company has increased its sales investment, it has not seen practical results from the current financial report.
In the first half of the year, the company will split 67 sales offices. It is expected that the company plans to use a more detailed and meticulous sales network to implement a more sophisticated sales strategy.
In addition, the company strengthened the development of new channels and involved in new retail, group buying, catering, aviation catering, takeaways and events.
In terms of products, the company currently uses the “Wujiang” and “Huitong” brands. The company has expanded the promotion of “Huitong”. At the same time, the company has introduced new products such as mustard soy sauce and radish.Feel the price increase.
In the first half of 2019, the company’s operating costs decreased significantly5.
86%, the first is: the price of green heads rose last year, and the cost bonus was extended to this year.
The price of cabbage heads is still low this year. Generally speaking, the PPI trend has dropped sharply this year. Therefore, we believe that the dividends from operating costs will change, and some hedges will reduce the pressure on revenue.
In the first half of 2019, the company’s gross profit margin reached a new high.
In 20191H, the company’s product gross margin reached 58.
6%, an increase of 3 a year.
56 units.Among them, the gross profit margin of mustard must reach 60.
51%, an increase of 4 per second per year.
At the same time as the company’s revenue growth rate, the 合肥夜网 company’s product profitability reached a new high.
It is difficult for us to make a prediction: whether the profit increase caused by the price increase of the product also poses great pressure on sales, but we maintain the company’s early judgment that it is difficult to raise prices again this year.
Regarding the issue of inventory, the market should take a rational view.
As of the end of the period, the company’s inventory composition was mainly raw materials, accounting for 89% of its inventory.
82% worth 3.
We analyze that the company has increased its raw material reserves due to the higher price of cabbage head last year and this year.
In addition, combined with the company’s investment in the construction of the raw material pool, we believe that the raw material inventory level may be relatively high in the future.
Finally, the inventory of goods at the end of the period was flat and slightly lower than the same period of the previous year, and there was no vertical inventory backlog.
The company is in the expansion phase, and the construction in progress for the current period increased by 1 compared with the beginning of the period.
The company’s current projects under construction include Liaoning 5 intervention Kimchi project, 1.
6Initial crispy mustard project, Meishan and Huitong’s raw material pool project, and brine treatment environmental protection project.
Although it is a leader in market segmentation, the company is still in the expansion phase. The driving force behind it should be market segmentation and demand side becoming more and more diversified.
Because the company’s own cash is too much, the project uses its own funds and does not involve shareholders’ interests.
As of the end of the period, the company’s executives still held 11.83 million unrestricted restricted shares, accounting for 1.
5%, senior management holdings have previously been positive for the company’s future operations and mergers.
Regarding the company’s long-term development, we are still relatively optimistic: in 2019, the cost of raw greens will continue to be low.
Due to higher costs and earlier price increases, the company’s profitability will increase in 2019.
The current harvest season of cabbage heads, according to our survey, the price of cabbage heads in 2019 will fall even more than in 2018.
Green cabbage heads account for 40% to 50% of the company’s operating costs. The price of green cabbage heads is maintained at a price range of 600 to 700 yuan per ton, which is important for the company’s main products to improve its gross profit margin.
In addition, the company changed the acquisition method of green cabbage this year, from the previous acquisition of fresh vegetables to the acquisition of semi-finished products this year, using private storage tanks, the farmers completed the initial processing period.
The capacity of the company’s warehouse pool is currently about 20 tons, which corresponds to a capacity of only 10 to 13 tons of mustard. The throughput is visible.
In addition to the use of private storage pools, the company is still building its own storage pools. Although the output has been reduced, it is not a core issue.
There are disadvantages to the continued increase in product prices in 2019.
As of 2018, the average ex-factory price of the company’s products has nearly doubled from 2011. We believe that it is difficult to continue to significantly increase product prices in 2019.
First, the growth of social retail scale is accelerating, and consumption is not completely friendly. Second, the company’s sales growth in the first quarter is not ideal. In order to gradually sell, the company may consider giving up the price requirements. Third, the company will focus on this year.For third- and fourth-tier markets, the price sensitivity of relevant consumer groups needs to be considered.
The company’s future growth indicators: the continued expansion of market share; the growth of weak and blank markets; and the growth of marginal consumption related to the start of construction.
We have observed that during the period from 2012 to 2015, the company drove sales growth by maintaining a balance between volume and price, either by volume or by price.
During the period from 2016 to 2018, the company’s operation basically realized the increase in volume and price, which was 27.
3% average annual growth.
Among the reasons, we believe that: from 2015 to 2018, the domestic economy stabilized and recovered at the bottom of the L-shape, which is an external reason; through listing in 2010 and years of operation, the company’s market channels have become more mature and the brand powerBecoming stronger and stronger, becoming the leading company in the market segment, carefully preparing for sales and price increases.
The company has absolute share and brand power in market segments. At present, the share of Wujiang mustard in the mustard market is 50% to 60%. The competitive environment is relatively superior, and the upstream has control over raw materials.Although the product is small, the level of profit is high and the model is clear.
The company’s core problems in the future are sales growth and sales growth expectations: continued expansion of market share; growth of weak and blank markets.
Although sales of mustard have slowed down in first-tier cities, we are still optimistic about the growth of products in second-, third- and fourth-tier markets.
Pickled mustard and low-grade liquor have common consumption characteristics: the marginal growth of consumption is related to fixed investment, new construction and other macro data. The growth rate of fixed investment in 2019 will rise monthly, which will also help the growth of mustard consumption.
The company’s sales scale is less than 2 billion, and we believe that it is still in the early stage of long-term growth.
The company’s sales scale is currently less than 2 billion, and it is still in the initial stage of long-term growth.
With reference to the sales scale of comparable listed companies in the United States, we selected Herbalife Soup, the company operating concentrated soup products, which reached US $ 59 billion in 2018, with an average annual growth rate of 6% in the past three years.Western-style condiments, 37.5 billion yuan in 2018 each year, an average annual growth rate of 11% in the past three years; and Lancaster Foods, operating a variety of Western-style salad dressing products, totaled $ 8.1 billion in 2018.
Finally, we do not think that the high growth of mustard products is caused by the degradation of social consumption. On the contrary, the company’s main product’s ex-factory ton price has increased for a long time. This is precisely the performance of consumption upgrades. There is still a lot of room for upgrades for small mustard.
Investment advice: The company has outstanding competitive advantages and high profitability, which is a good target for value investment.
In addition, there is room for continued growth in the company’s sales scale in the long run.
The market’s response to the company is somewhat biased: too much expectation when performance growth, and too pessimistic when performance is flat.
In view of the company’s current weak sales, we temporarily lower the company’s revenue forecast.
We predict that the companies in 2019, 2020 and 20121 will be 2029 respectively.
4 million yuan, an increase of 6% a year, 9.
2% and 13.
4%; EPS are 0.
91 yuan, 1.
00 yuan, 1.
Refer to the closing price of 21 on August 7.
99 yuan, the corresponding PE is 24.
8 times, 19.
Given the company’s 25 times price-earnings ratio in 2020, the corresponding target is expected to be 25 yuan, which is now 13 immediately.
The increase of 6% reduced the company’s rating from “Buy” to “Overweight”.
Risk reminder: It is not ruled out that the company’s sales may deteriorate further in the second half of the year; the market may react excessively to the growth or growth of the company’s performance.