---
title: "Half-Year Net Profit of 3.3 Billion, Market Value Rising 1.5 Billion Daily: Time to Prick the Bubble of Haitian Flavoring"
description: "In the first half of 2020, Haitian Flavoring achieved both stock price and performance gains, with its market value surpassing Sinopec on August 18, creating an A-share spectacle where 'a bottle of soy sauce' is more expensive than 'a barrel of oil'. The company's revenue and net profit far exceeded the combined figures of several listed peers, but its growth bottleneck is emerging as most products are concentrated in the mid-to-low-end market."
author: "财天作者"
publisher: "New Distribution"
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published: "2020-08-31"
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# Half-Year Net Profit of 3.3 Billion, Market Value Rising 1.5 Billion Daily: Time to Prick the Bubble of Haitian Flavoring

> In the first half of 2020, Haitian Flavoring achieved both stock price and performance gains, with its market value surpassing Sinopec on August 18, creating an A-share spectacle where 'a bottle of soy sauce' is more expensive than 'a barrel of oil'. The company's revenue and net profit far exceeded the combined figures of several listed peers, but its growth bottleneck is emerging as most products are concentrated in the mid-to-low-end market.

**For many companies, the first half of 2020 was undoubtedly somewhat bleak, but for Haitian Flavoring, it was a case of 'a blessing in disguise', with both stock price and performance achieving double harvest. On August 18, it even created an A-share spectacle where 'a bottle of soy sauce' is more expensive than 'a barrel of oil', with its market value surpassing Sinopec. As of August 27, Sinopec's A-share market value was 481.917 billion yuan.**
The 'soy sauce king' Haitian Flavoring has once again sold its soy sauce at a 'high price'.
On the evening of August 27, Haitian Flavoring released its 2020 semi-annual report, showing that during the reporting period, it achieved revenue of 11.595 billion yuan, a year-on-year increase of 14.12%, and net profit attributable to shareholders of 3.253 billion yuan, a year-on-year increase of 18.27%. Both revenue and net profit far exceeded the combined figures of several listed peers such as Zhongju High-tech, ST Jiajia, and Qianhe Flavoring.
In terms of stock price, Haitian Flavoring has been far ahead. Data shows that as of August 27, Haitian Flavoring's stock price closed at 183.02 yuan per share, up 6.41%, with a total market value of up to 593.066 billion yuan, making it the undisputed leader in the condiment industry.
**Analyzing the reasons for the dual growth in performance and profit, it is related to the fact that during the epidemic, the overall market demand for soy sauce, a rigid demand product, did not change much.** Moreover, the epidemic mainly affected the catering industry, but they purchased more large-packaged products, which have lower profit margins than retail products mainly for home cooking.
However, despite the rising performance and market value, **Haitian Flavoring's growth bottleneck has emerged, with most products concentrated in the mid-to-low-end field of red ocean competition, which is a relatively large pressure for the long-term development of the enterprise.**
**-01-**
##### **Market Value Rises by 1.5 Billion Yuan on Average Per Day, 'A Bottle of Soy Sauce' More Expensive Than 'A Barrel of Oil'**
For many companies, the first half of 2020 was undoubtedly somewhat bleak, but for Haitian Flavoring, it was a case of 'a blessing in disguise', with both stock price and performance achieving double harvest. On August 18, it even created an A-share spectacle where 'a bottle of soy sauce' is more expensive than 'a barrel of oil', with its market value surpassing Sinopec. As of August 27, Sinopec's A-share market value was 481.917 billion yuan.
On January 2, 2020, the first trading day of the new year, Haitian Flavoring's stock price and market value were 89.10 yuan per share and 240.603 billion yuan respectively. By August 27, they had risen by 105.41% and 146.49% respectively, reaching 183.02 yuan per share and 593.066 billion yuan, ranking tenth among A-share listed companies by market value, equivalent to an average daily increase of about 1.5 billion yuan.
In fact, since its listing, Haitian Flavoring has always been a favorite in the capital market. **From the overall stock price trend, in the more than six years since February 2014, except for a slight decline in 2016, it has been rising in all other years, with an increase of more than 100% since 2020.** According to the 2020 semi-annual report, Pang Kang, Cheng Xue, Huang Wenbiao, Wu Zhenxing, Chen Junyang, and Ye Yanqiao collectively hold 55.89% of Haitian Flavoring's shares, making them the actual controllers. Among them, Pang Kang, chairman and president of Haitian Flavoring, holds a total of 32.51% through direct and indirect shareholding. Based on this calculation, as of August 27, Pang Kang's latest market value of holdings was approximately 192.806 billion yuan.
A year ago, in the 2019 Hurun Rich List, the low-key Pang Kang ranked 23rd with a net worth of 85 billion yuan, tied with Wahaha founder Zong Qinghou, successfully becoming the new richest person in China's food and beverage industry.
Why has Haitian Flavoring become a 'hot potato' in the capital market?
**The long-term stable growth of performance is undoubtedly the key.**
Data shows that from 2014 to 2019, Haitian Flavoring achieved revenue of 9.817 billion yuan, 11.294 billion yuan, 12.459 billion yuan, 14.584 billion yuan, 17.034 billion yuan, and 19.797 billion yuan respectively, with growth rates of 16.85%, 15.05%, 10.31%, 17.06%, 16.80%, and 16.22%; net profit attributable to shareholders was 2.09 billion yuan, 2.51 billion yuan, 2.843 billion yuan, 3.531 billion yuan, 4.365 billion yuan, and 5.353 billion yuan, with year-on-year increases of 30.12%, 20.06%, 13.29%, 24.21%, 23.60%, and 22.64%.
Even in the first quarter of 2020, which was greatly affected by the epidemic, its revenue growth rate and net profit growth rate reached 7.17% and 9.17% respectively. With such long-term performance trends, coupled with its leading position in the soy sauce industry for more than 20 consecutive years, it is not surprising that Haitian Flavoring has received capital favor.
So, what created the 'soy sauce king'?
Reviewing the development history of Haitian Flavoring, it can be found that brand building and channel construction are the two magic weapons of Haitian Flavoring.
In terms of brand building, as early as the early 1990s, when most soy sauce was still sold in bulk, Haitian Flavoring had already launched bottled soy sauce with a new brand logo. In 1999, it spent heavily to become the first soy sauce brand to advertise during the time signal of 'News Broadcast'. In recent years, Haitian Flavoring has sponsored various popular variety shows such as 'Crossing Singers 3', 'Roast', and 'Chinese Restaurant', and in 2014 invited well-known host Wang Han as its first spokesperson. Image source: Haitian Flavoring official website
In terms of data, from 2014 to 2018, in just five years, Haitian Flavoring's sales expenses doubled, from 1.05 billion yuan to a peak of 2.236 billion yuan. Although it decreased in 2019, it still reached 2.163 billion yuan, and in the first half of 2020 it was 865 million yuan.
**In terms of channel construction, Haitian Flavoring has a unique 'strategy', adopting a two-tier sales system of distributors and sub-distributors/alliance merchants.** Haitian's sales agencies in various regions manage sub-distributors/alliance merchants together with distributors, and by setting up multiple distributors in one region, they conduct internal 'horse racing' to improve product penetration.
According to the latest disclosed data, as of June 30, 2020, the number of first-level distributors of Haitian Flavoring has reached 6,433, a net increase of 627 from 5,806 at the end of 2019, equivalent to an average net increase of about 3.45 distributors per day, achieving 100% coverage in prefecture-level and above cities in China, and among inland provinces in China, 90% of provinces have sales exceeding 100 million yuan.
During the same period, the number of distributors for ST Jiajia (Jiajia soy sauce), Zhongju High-tech (Meiweixian), and Qianhe Flavoring were all in the range of over 1,000, only about one-fifth of Haitian Flavoring's.
Therefore, even assuming that the product gap is not large, Haitian Flavoring's sales network has a more competitive advantage.
**-02-**
##### **Difficult to Escape Mid-to-Low-End Troubles, Is There Room for Further Growth?**
Although performance and market value have been rising, Haitian Flavoring's development is not without hidden concerns.
In fact, **the main problem of Haitian Flavoring is that most of its products are concentrated in the mid-to-low-end field of red ocean competition, which is a relatively large pressure for the long-term development of the enterprise.**
Taking soy sauce, the pillar product accounting for about 60% of revenue, as an example, with the gradual saturation of the mid-to-low-end soy sauce market in recent years, the revenue growth rate of Haitian Flavoring's soy sauce products has been shrinking. From 2017 to the first half of 2020, the revenue growth rates of soy sauce products were 16.59%, 15.85%, 13.60%, and 10.71% respectively, showing an overall downward trend.
In the view of many industry insiders, this phenomenon indicates that the ceiling of Haitian Flavoring in the low-end soy sauce market is clearly visible, and Haitian Flavoring's recent attempts to expand into cooking wine, hot pot base, and other tracks have also been interpreted as possible new growth points for Haitian Flavoring to seek breakthroughs after encountering performance bottlenecks.
According to media reports, recently, Haitian Flavoring's Tmall official flagship store quietly launched four types of hot pot bases, including Korean spicy beef, Korean army, Xinjiang tomato, and Yunnan-Guizhou sour soup flavors, with a single pack price of 15.9 yuan and a four-pack combo price of 39.6 yuan, with production dates showing July 2020 production.
According to a query by 'Finance World Weekly', as of August 27, the monthly sales of Haitian Flavoring's newly launched hot pot bases on Tmall flagship store were 624 units. Image source: Haitian Flavoring Tmall flagship store
'It should be the simplest for Haitian Flavoring to enter other condiment markets such as cooking wine and hot pot base,' Shen Meng, executive director of Chanson Capital, told 'Finance World Weekly'. 'Because it has accumulated resource advantages in production capacity, brand, and channels in the soy sauce field, when it replicates these resources and successful experience in the soy sauce industry to other condiment fields, it can develop a new product at a lower cost.'
According to the 'Hot Pot Industry Full Industry Chain Report', since 2011, the hot pot industry has maintained a high growth rate of over 10%, and the rapid development of the hot pot industry has driven the synchronous development of the hot pot base market.
Data shows that in 2018, the hot pot base market size was about 20 billion yuan, with an increase of about 15% in recent years. It is expected that the market size will reach 31 billion yuan in 2020 and exceed 40 billion yuan by 2025, which is clearly still 'profitable'.
However, Shen Meng further analyzed that this approach is still '**more about fighting with mid-to-low-end brands, and cannot truly enter the mid-to-high-end market with better returns**'.
In his view, although Haitian Flavoring is currently in a relatively leading position in China, in terms of the global soy sauce industry, it still has a lot of room to expand. 'Under this premise, it has already begun to intervene in horizontal condiment markets such as cooking wine, which may distract it from adhering to the core business of the soy sauce market, leading to its long-term position at the mid-to-low end of the product chain, which is not conducive to the long-term brand accumulation and heritage of the enterprise.'
But it is obviously not simple for Haitian soy sauce to break through from the mid-to-low-end market to high-end soy sauce. Qianhe, Lee Kum Kee, Shinho, Luhua, Chubang, and others have been cultivating the high-end soy sauce market for a long time, seizing a large share of the market. At the same time, foreign companies such as Kikkoman, the leader in the Japanese soy sauce industry, Danone of France, and Kraft Heinz have also entered the domestic soy sauce industry, further intensifying market competition.
**-03-**
##### **Condiment Industry 'Blessing in Disguise', Stock Prices and Performance Rise Together**
During the epidemic, it was not only Haitian Flavoring that was 'blessed in disguise'. In fact, many listed companies in the condiment industry, including Zhongju High-tech, Qianhe Flavoring, ST Jiajia, Hengshun Vinegar, and Tianwei Food, saw significant increases in stock prices and performance.
In terms of capital market performance, as of the close on August 27, the total market values of Haitian Flavoring, Zhongju High-tech, Tianwei Food, Qianhe Flavoring, Hengshun Vinegar, and ST Jiajia were 593.066 billion yuan, 63.811 billion yuan, 42.057 billion yuan, 29.449 billion yuan, 26.829 billion yuan, and 10.103 billion yuan respectively, with increases of more than 100% from the beginning of the year. Among them, Qianhe Flavoring's market value increase reached 317.83%. Chart: Zhou Xiangyue
In terms of performance, in the first half of 2020, Zhongju High-tech, ST Jiajia, Hengshun Vinegar, Qianhe Flavoring, and Tianwei Food achieved revenue of 2.554 billion yuan, 1.156 billion yuan, 953 million yuan, 919 million yuan, and 799 million yuan respectively, with year-on-year increases of 6.78%, 12.87%, 7.39%, 45.98%, and 34.53%; net profit attributable to shareholders was 455 million yuan, 107 million yuan, 149 million yuan, 200 million yuan, and 157 million yuan, with year-on-year increases of 24.31%, 24.67%, 3.63%, 94.62%, and 79.85%, with both revenue and net profit showing significant growth.
Even in the first quarter, which was greatly affected by the epidemic and saw large-scale closures of the catering industry, only ST Jiajia among the six companies experienced a double decline in revenue and net profit, while Zhongju High-tech saw a decline in revenue but a reverse increase in net profit.
Chart: Zhou Xiangyue
Why does this happen?
Shen Meng, executive director of Chanson Capital, told 'Finance World Weekly', 'Mainly because soy sauce is a daily necessity for daily consumption. Whether eating out or cooking at home, the overall market demand for soy sauce does not change much. The epidemic mainly affected the catering industry, but they purchased more large-packaged, wholesale products, which have lower profit margins than retail products mainly for home cooking.'
Shen Meng further analyzed that although the epidemic affected the demand for low-profit products in the catering industry, the demand for high-profit retail products for home cooking increased. 'Coupled with the reduction in costs of channels such as e-commerce, after offsetting multiple factors, the total consumption of soy sauce may not change much, but it has a more obvious effect on improving corporate performance.'
This is also clearly reflected in Zhongju High-tech's first-quarter 2020 performance data. Data shows that in the first quarter of 2020, Zhongju High-tech achieved revenue of 1.153 billion yuan, a year-on-year decline of 6.32%, but net profit attributable to shareholders increased by 8.94% year-on-year to 206 million yuan, with a significant improvement in net profit margin.
Regarding the trend of the condiment market in the second half of the year, Shen Meng believes that as the catering industry gradually recovers, some of the sales of high-profit products may flow back to low-profit large-packaged products, which will have a certain impact on profit margins. 'But because the overall market size is still expanding, overall performance will not decline significantly.'
'In the second half of the year, more condiment companies may, like Haitian Flavoring, extend to other types of condiment markets based on their own brands,' Shen Meng added.
Source: Finance World Weekly (ID: cjtxzk) Author: Zhou Xiangyue
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