Haitian Flavoring & Food Company urgently needs to defend its valuation.
“When it was just listed in 2014, Haitian proposed its first five-year plan, which was to recreate another Haitian from 2013 to 2018.” The bold words of Haitian Flavoring & Food Company are still fresh in our ears.
Time flies. Now Haitian Flavoring & Food Company has entered its third five-year plan, and its market value once soared from 50 billion to 650 billion yuan. The latest 2021 annual report mentions that this is the third year of the “Third Five-Year Plan,” a crucial year connecting the past and the future. However, its revenue and net profit growth rates both fell to single digits for the first time.
On March 25, Haitian Flavoring & Food Company closed at 88.08 yuan per share, slightly down from the previous day's close of 90 yuan, with a total market value of 371 billion yuan, shrinking by more than 300 billion yuan from its peak.
Having topped the soy sauce industry for 25 consecutive years, the “Soy Sauce Maotai” now has a hint of a hero in his twilight years. With growth slowing for several consecutive years and investors losing patience, Haitian Flavoring & Food Company, which had repeatedly stated it would not raise prices, finally announced a price increase under pressure.
As the stock price continued to decline, investor confidence waned, and Haitian Flavoring & Food Company became less confident. In 2021, shareholders successively “fled” at delicate timing; external investment actions were frequent, but financial management preferences were conservative; the category expanded “without boundaries,” but the mainstay remained the “old partners.”
In 2022, Haitian Flavoring & Food Company set a target of 11.98% revenue growth. With the “reconciliation” with community group buying and rising product prices, this is undoubtedly an “unconfident” target.
“Soy Sauce Maotai” Suffers Waterloo
Ideals are丰满, but reality is骨感.
Haitian Flavoring & Food Company had set its 2021 total operating revenue target at 26.44 billion yuan and profit target at 7.56 billion yuan. Accordingly, Haitian Flavoring & Food Company expected revenue and profit growth rates of 16.48% and 18.09% respectively for 2021. Unfortunately, the final results fell far short of initial expectations.
Regarding the reasons for last year's performance decline, Haitian Flavoring & Food Company responded in the report: On the sales side, changes in the external economic environment led to weakened consumer demand, and the fission of new consumption and new channels brought new challenges and opportunities to the condiment market, also making consumer demand diversified.
On the cost side, since the beginning of this year, upstream material prices have continued to rise, putting significant operating pressure on production costs and squeezing industry profits.
BOC International pointed out that since the beginning of 2021, the C-end has been greatly impacted by community group buying. Community group buying platforms use recommended low-price products to attract traffic, which to some extent triggers consumption downgrading, and consumers have low awareness of the products themselves, making them easily confused.
In addition, some distributors choose to purchase from this channel, which also has a certain impact on the company's established sales network.
But looking back at 2020, when the pandemic hit hard and community group buying was in full swing, Haitian Flavoring & Food Company still achieved a revenue growth rate of 15.13% and a net profit growth rate of 19.61%.
As the pandemic slowed and community group buying receded, Haitian Flavoring & Food Company even led designated distributors and products to join the community group buying track, but in 2021, not only did it fail to maintain basic growth, but the growth rate directly fell to single digits.
Performance pressure actually began to show in the first half of last year. In the second quarter of 2021, Haitian Flavoring & Food Company's revenue fell 9.39% year-on-year, and net profit fell 14.68% year-on-year, marking the first single-quarter negative growth in a decade.
On the one hand, this is inseparable from the high base in the same period of 2020. The arrival of the pandemic in early 2020 caught the industry's upstream and midstream off guard. As the pandemic improved, consumer demand was strong, and channel inventory was consumed quickly. In the second quarter of 2020, revenue grew 22.29% year-on-year, and net profit grew 28.83% year-on-year. Therefore, it set a “high tone” for the second quarter of 2021.
On the other hand, the decline in profit fundamentally stems from the decline in gross margin, coupled with the impact of community group buying, causing pressure on distributors' operations. In the second quarter of 2021, the gross margin of Haitian Flavoring & Food Company's food manufacturing industry decreased by 4.11% year-on-year, and the sales gross margin fell 9.48% quarter-on-quarter to 37.06%, a record low.
The decline in gross margin further reduced distributors' willingness to purchase.
At that time, some industry insiders publicly stated that the current condiment market was in a depressed state, with profits at all levels of the channel at low levels and thin, and many distributors were not willing to purchase.
The pressure Haitian faces is not just the rise in bulk raw material costs, but more the comprehensive increase in cost expenditures. In addition to the direct material cost of the main business increasing by 18.17% year-on-year, manufacturing expenses and direct labor items also increased by 13.21% and 9.74% respectively.
This is not only a dilemma for one company, but also a growth bottleneck for the entire industry. How to break through, everyone is watching the actions of Haitian, the “weather vane.”
“Slap in the Face” Price Increase
On the evening of October 12, 2021, Haitian Flavoring & Food Company officially announced that it would adjust the ex-factory prices of some products by 3%-7%, with new prices to be implemented on October 25. At that time, it had been five years since the last price increase.
In fact, as early as 2020, some securities firms predicted that Haitian Flavoring & Food Company would enter a new round of price increases. With raw material costs continuing to rise, raising product prices to hedge pressure is reasonable from a business logic perspective, but Haitian Flavoring & Food Company repeatedly denied it.
On December 17, 2020, Haitian Flavoring & Food Company officially stated that it had no price increase plan for 2021. Subsequently, in communication with investors, it again expressed its determination not to raise prices, saying it would “digest external upward pressure by improving internal operating efficiency.”
Affected by this news, the next day after the market opened, the condiment sector led the decline, with Haitian Flavoring & Food Company falling up to 5%.
In July 2021, rumors that Haitian Flavoring & Food Company was about to raise prices rose again, and securities firms' analyses were plausible. Huatai Securities believed that “the industry may enter a price increase cycle.” A month later, Haitian Flavoring & Food Company responded again on the investment interaction platform, saying that “there is currently no price increase plan for next year.”
Investors' patience may have run out. Three days after that response, Haitian Flavoring & Food Company disclosed its semi-annual report, and then the stock hit the limit down, falling below the 100-yuan mark.
Once vows were made, now even a “slap in the face” must raise prices, showing Haitian Flavoring & Food Company's helplessness in having to raise prices under cost pressure.
In December 2019, soybean futures were around 3,300 yuan per ton, but by March 25, 2022, soybean futures had exceeded 6,000 yuan per ton, continuously hitting record highs.
In the 2021 annual report, the pressure from rising raw material prices can be more clearly felt. For soy sauce, which uses soybeans as the main raw material, direct material costs rose more than 20% year-on-year, accounting for more than 80% of the total production cost of this category, while the gross margin of this category decreased by 4.47% compared with the previous year.
Haitian Flavoring & Food Company was not able to “digest external upward pressure by improving internal operating efficiency” as it wished, but can raising prices solve this problem?
Liu Guangyi, food and beverage analyst at Minsheng Securities, pointed out that Haitian Flavoring & Food Company's previous two price increases were in 2014 and 2016. The previous two price increases had sufficient objective conditions: low channel inventory and high terminal demand. Cost pressure driving price increases was a natural thing, but the background of this price increase is different. High channel inventory and weak terminal demand increase the difficulty of raising prices.
After years of accumulation, Haitian Flavoring & Food Company's position in the industry can be described as “crushing.” Its annual report also mentioned that its soy sauce products have ranked first in the industry in sales for 25 consecutive years.
At the same time, Haitian Flavoring & Food Company is the only supplier in the industry that insists on “payment before delivery.” Its confidence comes from the absolute strength of the brand in the industry, and the consumer stickiness reflected behind it seems to be a reason for successful price increases.
However, as a daily necessity, condiments have always had low price sensitivity, but the addition of community group buying has made low prices a competitive advantage, which will undoubtedly have a certain impact on Haitian Flavoring & Food Company's business. Of course, the specific impact is unknown for now.
However, Haitian Flavoring & Food Company mentioned in its financial report that a series of problems, including vicious competition in community group buying, have made the company face unprecedented challenges.
Raising prices may be a feasible path for Haitian and the entire industry. On the one hand, it can enrich channel profits and boost channel enthusiasm, and it can also help distributors achieve inventory transfer, thereby re-forming a virtuous cycle.
BOC International believes that raising prices will help increase profits in the condiment industry in the short term, and industry concentration will continue to increase in the future. This means that securities firms will continue to be optimistic about Haitian Flavoring & Food Company.
This scene is familiar. In 2021, when Haitian Flavoring & Food Company hit the limit down, securities firms ignored its insistence on not raising prices and successively issued bullish signals, but their confidence did not affect Haitian Flavoring & Food Company's sluggish growth. Now that Haitian Flavoring & Food Company's revenue is under pressure, securities firms still hold a bullish attitude, but this time, it may be Haitian itself that lacks confidence.
Lack of Confidence in Growth
Although raising prices may alleviate cost pressure to some extent, if it wants to solve sluggish performance growth, raising prices alone is not enough to reverse the decline.
Compared with the boldness of “recreating another Haitian in five years” back then, today, whether in terms of goals or specific actions, Haitian Flavoring & Food Company reveals “lack of confidence” everywhere.
In 2022, Haitian Flavoring & Food Company plans an operating revenue target of 28 billion yuan and a profit target of 7.47 billion yuan. Calculated, Haitian's revenue target growth rate this year is set at 11.98%.
Normally, after the price increase in October 2021, the effect of the price increase should be reflected in 2022, coupled with the improvement of the pandemic and the running-in of Haitian with community group buying channels, various pressures in 2022 should improve. But relatively speaking, the goal Haitian set for itself is conservative.
As early as mid-last year, senior executives of Haitian Flavoring & Food Company reduced their holdings in a concentrated manner.
On June 28, 2021, Haitian Flavoring & Food Company announced the reduction of senior executives' holdings. Guan Jianghua, Wu Zhenxing, and Huang Wenbiao respectively reduced their company shares by 130,000 shares, 197,000 shares, and 442,300 shares through centralized bidding, with the three cashing out amounts of 17.1622 million yuan, 26.7474 million yuan, and 92.1056 million yuan respectively, with selling prices ranging from 130 yuan to 215 yuan.
Looking back now, it can be said that the “exit” timing was precise.
The current stock price has fallen by 30% compared with the time of the concentrated reduction by senior executives. In contrast to the falling stock price, Haitian's willingness to invest externally is exceptionally high.
From the beginning of 2021 to now, Haitian Flavoring & Food Company has announced 8 external investment announcements, investing a total of 1.465 billion yuan. In 2020, including investment in establishing subsidiaries, it was only 6 times, and previously the number of external investments was even fewer.
On the day of releasing the 2021 annual results, Haitian Flavoring & Food Company announced that the board of directors agreed to use part of the company's own funds to purchase low-risk short-term wealth management products from financial institutions such as banks, securities firms, and asset management companies.
The entrusted wealth management amount does not exceed 7.5 billion yuan, with a validity period of one year from the date of approval by the shareholders' meeting. This amount accounts for about 38% of Haitian Flavoring & Food Company's monetary funds at the end of 2021.
Generally speaking, when a company has normal operating turnover and construction investment funds, using idle free funds for appropriate short-term low-risk financial product investment can improve the efficiency and effectiveness of the company's idle funds.
Low-risk financial products usually also mean low returns. But currently, Haitian's growth is under pressure, and new growth points are unclear. The company is still heavily investing in low-return products externally rather than its own business, which reveals a sense of “not trusting” its own business in all aspects.
Previously, Haitian said it would seize increment from存量, and one of the important measures was to vigorously develop diversification, laying out grain and oil, rice and flour, as well as hot pot base and pre-made dishes, but no product has become a hit. Even in the financial report, these diversified products can only be collectively called “other categories.”
In 2021, other businesses achieved revenue of 2.211 billion yuan, contributing about 8.84% to revenue, and previous contributions did not exceed 10%.
In addition, Haitian Flavoring & Food Company has successively applied for a series of trademarks involving beer and beverages, food, and convenience food, and the market speculates that it may be preparing to enter new business areas such as beer and beverages and convenience food. New products are frequently launched, but no big splash has been seen.
Guosheng Securities said in a research report in July last year that it is not difficult for Haitian to make a key breakthrough in a certain segment of compound condiments, but it is still difficult to become a leader in compound condiments.
The profitability of the three main products—soy sauce, seasoning sauce, and oyster sauce—also showed a downward trend. In 2021, the gross margins of the three products fell by 4.47%, 4.68%, and 0.75% respectively.
In addition to relying on products, Haitian, whose basic market was previously offline, is gradually making efforts online. Last year, Haitian Flavoring & Food Company's online channel achieved revenue of 704 million yuan, a year-on-year increase of 85.2%, while offline channel revenue increased 7.73% to 22.89 billion yuan, but the online channel still contributed little to total revenue, accounting for only 2.98%.
Will Haitian's bubble continue to inflate, and is there a needle waiting to prick it? How should the “Soy Sauce Maotai” break the situation, and how much patience does the capital market have? All these need to be verified by time.
Source: Finance New Knowledge (ID: caijingxinzhi)
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