Zhang Kun, who graduated from Tsinghua University in 2008 with a master's degree in biomedical engineering, is the new "No. 1 public fund manager." He is a star fund manager with a "global fan club," known as the "100-billion top stream," and is called "the eternal god" by his iKun fans. With many halos, heavy funds, and a low profile, naturally, his every move attracts attention. Recently, a share repurchase announcement by Zhongju High-tech unexpectedly revealed Zhang Kun's new move: three of the four funds he manages—E Fund Small-cap Hybrid, E Fund Blue Chip Select Hybrid, and E Fund High-quality Enterprises Three-year Holding Period Hybrid—significantly increased their holdings in Zhongju High-tech. As of April 1, these three funds collectively held 9.29% of Zhongju High-tech. From the Q1 2021 report of E Fund Small-cap Hybrid, it can be seen that Zhongju High-tech ranked ninth among its top ten holdings. Many fund investors wonder: What exactly is Zhongju High-tech, that it has won the heart of "idol" Zhang Kun? Zhongju High-tech, whose full name is Zhongju High-tech Industrial (Group) Co., Ltd., might sound like a high-tech enterprise, but in fact, its main business is condiments, primarily soy sauce, under the brands "Chubang" and "Meiweixian," which are familiar to many. As of April 23, Zhongju High-tech's share price had fallen 23.50% in 2021.
-01-
Zhang Kun Adds 3.2 Billion Yuan
Zhongju High-tech and Haitian Flavoring are "fellow townsmen" from Guangdong. Haitian is in Foshan, while Zhongju is in Zhongshan. However, in front of Haitian, the "Moutai of soy sauce," Zhongju is just a younger brother. Ranked by total market value, revenue, or market share, Zhongju is the second-largest in the soy sauce industry, followed by Qianhe Flavoring, Jiajia Food, and other well-known companies. Compared with Haitian and Qianhe, Zhongju's main business is more complex, including not only condiments but also park operations and urban development. However, condiments account for over 95% of revenue, making it the company's absolute mainstay. In terms of valuation, Zhongju is at a relatively low level compared with peers. As of April 23, Haitian's trailing P/E ratio was as high as 86.44 times, Qianhe's was 126.57 times, while Zhongju's was 45.64 times. In his 2020 annual report, Zhang Kun revealed the direction of his fund restructuring: For individual stocks, he increased the investment proportion in stocks with distinctive business models, clear long-term logic, and reasonable valuations. Based on changes in holdings, Zhang Kun does not favor Haitian or Qianhe but prefers the "second-largest soy sauce maker"—from holding it in one fund to holding it in three funds, with the holding ratio increasing from 2.39% to 9.29%. E Fund Small-cap entered Zhongju's shareholder list in Q3 2020, and by the end of 2020, its holdings had increased to 19.0001 million shares (2.39%). E Fund Blue Chip held 1.5001 million shares (0.21%) of Zhongju at the end of 2020; E Fund High-quality Enterprises was established in June 2020 and did not hold Zhongju at the end of 2020. Therefore, the significant increase in holdings by these three funds can be confirmed to have occurred in Q1 2021. As of April 1, 2021, E Fund Small-cap's holdings increased to 34.0001 million shares, accounting for 4.27% of Zhongju's total share capital; E Fund Blue Chip's holdings increased to 31.0001 million shares, accounting for 3.89%; E Fund High-quality Enterprises held over 9 million shares, accounting for 1.13%. The three funds collectively held 74.0002 million shares, or 9.29%. At the same time, among Zhongju's top ten shareholders, E Fund Small-cap, E Fund Blue Chip, and E Fund High-quality Enterprises ranked fourth, fifth, and seventh, respectively. Since the beginning of this year, Zhongju has not implemented any share transfers or bonus shares, so total share capital has remained unchanged. That is, in Q1 2021, the three funds increased their holdings by 53.5 million shares. From January 1 to April 1, 2021, Zhongju's average share price was 59.57 yuan. Based on this, it can be roughly calculated that the cost of these three funds' additional purchases during this period was about 3.187 billion yuan. Unlike Zhang Kun's continuous increase, funds such as the National Social Security Fund portfolios, Xingquan Social Responsibility Hybrid, and Xingquan Hefeng Three-year Holding Period Hybrid reduced their holdings in Zhongju. In Q1 2021, Social Security Fund portfolios 101 and 106 reduced a total of 10.3344 million shares, Xingquan Hefeng reduced 2.7969 million shares, and Xingquan Social Responsibility was no longer among Zhongju's top ten shareholders. On September 3, 2020, Zhongju's closing price hit a record high of 82.85 yuan per share, after which it began to adjust. As of April 23, it had fallen nearly 40% from last year's high. From January 1 to April 1, 2021, the share price fell 27.86%. In his 2020 annual report, Zhang Kun said: "Any long-term effective method has short-term failures. When we invest in listed companies, if our confidence is built on rising stock prices, it is difficult to make money, because stock prices will inevitably fluctuate downward. My experience is that building positions when the stock price temporarily underperforms the market can more effectively test one's inner self." In fact, as early as 2014, Zhongju had already won Zhang Kun's favor. By the end of June 2015, Zhongju had become the largest holding of E Fund Small-cap, with Yili, Yutong Bus, Wuliangye, and Kweichow Moutai following in order. However, by the end of June 2016, Zhongju was no longer in E Fund Small-cap's portfolio.
-02-
From High-tech to Selling Soy Sauce
After several years, Zhongju has once again become a heavyweight holding of Zhang Kun. What exactly is this company? Just hearing the name "Zhongju High-tech," many people cannot figure out what the company's main business is. Moreover, the name has almost no connection with its main brands or business. Therefore, some investors have called on the interactive platform for Zhongju to change its name to something more relevant to its main business, like Chubang Flavoring, similar to Haitian and Qianhe. On April 2, Zhongju replied on the interactive platform: "The second shareholder, Torch Development Zone, does not agree to the name change. They believe that changing the name to 'Chubang' would help the company's operations but would ignore Zhongju's history. Shareholders are still communicating and negotiating." So, what is Zhongju's history? According to the annual report, Zhongju was established in 1993 and listed on the Shanghai Stock Exchange in January 1995, making it the first listed company among national development zones. It has been committed to investing in high-tech industries and managing national development zones. After more than 20 years of transformation, the company now engages in condiments, park operations, and urban development. Long ago, the company was named Zhongshan Torch High-tech Industrial Co., Ltd. In 2000, it was renamed Zhongju High-tech Industrial (Group) Co., Ltd., and the stock abbreviation was changed from "Zhongshan Torch" to "Zhongju High-tech," which has been used ever since. Looking at its development history, in essence, Zhongju is a park development and industrial investment company, having dabbled in a wide range of businesses, such as real estate development and services, new energy power batteries, micro-loans, condiments, trade, precision machinery, bioengineering, high-power switching power supplies, precision welded pipes, passenger transport, papermaking, alloy materials, belt pulleys, and auto and motorcycle parts... In 1999, Zhongju acquired Zhongshan Meiweixian Food Factory, which produced sauces and condiments. At that time, the factory was very profitable. In 1998, the year before the acquisition, it achieved sales revenue of 128 million yuan and profits of 12.33 million yuan. This became Guangdong Meiweixian Condiment Food Co., Ltd. ("Meiweixian Company"), a wholly-owned subsidiary of Zhongju. In 2006, Meiweixian's revenue accounted for about 52% of Zhongju's main business revenue, highlighting the importance of the condiment segment. As the company's performance became increasingly dependent on Meiweixian, in 2012, Zhongju adjusted its business strategy, terminated the power battery expansion plan, and established the development direction focusing on Meiweixian and Chubang. In the same year, Meiweixian and third-party capital Beijing Langtian Huide Investment Management Co., Ltd. ("Langtian Huide") jointly invested to establish Guangdong Chubang Food Co., Ltd. ("Chubang Company"). Meiweixian contributed 80 million yuan, accounting for 80% of the registered capital; Langtian Huide contributed 20 million yuan, accounting for the remaining 20%. From then on, Meiweixian and its 80%-owned subsidiary Chubang took on the responsibility of leading the listed company Zhongju forward. At that time, Zhongju's largest shareholder was Zhongshan Torch Group, with the actual controller being the Management Committee of Zhongshan Torch High-tech Industrial Development Zone. Soon, with the "knock" of the "Baoneng system," this equity relationship changed. In April 2015, Foresea Life Insurance raised its stake in Zhongju and became the second largest shareholder. At the end of Q1 2016, Foresea Life Insurance officially became the largest shareholder with a 24.92% stake. In September 2018, the "Baoneng system" made an internal transfer: Foresea Life Insurance transferred its 24.92% stake to Zhongshan Runtian Investment. After this series of operations, the largest shareholder became Zhongshan Runtian Investment of the "Baoneng system," and the original largest shareholder, Zhongshan Torch Group, became the second largest. The second shareholder that Zhongju now says does not agree to the name change is Zhongshan Torch Group. In addition, Zhongju's private placement plan initiated in September 2015—to issue shares to four targets, including Foresea Life Insurance's concert parties Zhongshan Fujun Investment, Zhongshan Chongguang Investment, Zhongshan Runtian Investment, and Zhongshan Yuanjin Investment—has been pending for several years. In its 2020 annual report, Zhongju still stated that due to a series of issues, the private placement plan still needs to be revised. If the issuance is completed, the "Baoneng system's" stake in Zhongju will further increase. At this point, both Zhongju's key business and controlling shareholder have changed. By 2020, Meiweixian's revenue accounted for as much as 97.17% of Zhongju's total revenue, and soy sauce, as the core product, accounted for over 60% of revenue.
-03-
How Far Is It from Haitian?
Soy sauce is the largest subcategory in the condiment industry, accounting for about 45% of consumption; followed by vinegar at about 15%; MSG at about 14%; compound condiments at about 11%; cooking wine at about 10%; and other condiments with smaller shares. On the consumer side, condiment sales channels are mainly three: catering, household, and food processing. Among them, catering accounts for the largest share, about 50%; household consumption follows at about 30%; and industrial channels account for about 20%. In the early condiment market, Zhongju mainly produced soy sauce, emphasizing "high freshness," using the "Meiweixian" brand for cost-effectiveness and the "Chubang" brand for the mid-to-high-end market, with green-checkered tablecloth packaging and the slogan "Chubang soy sauce, delicious and fresh, sun-dried for 180 days," focusing on household consumption channels such as supermarkets, forming a differentiated development from Haitian. Haitian mainly follows a mass-market route and focuses on B-end catering channels. During the rapid development of the soy sauce industry, this allowed Zhongju to grow significantly under the shadow of the giant through a "single-point breakthrough" strategy, becoming the industry's second-largest. In terms of category expansion, Zhongju's path is very similar to Haitian's. Initially, both focused on soy sauce, and later, both gradually implemented related diversification. Haitian has formed a product lineup of soy sauce, oyster sauce, and seasoning sauce, "one body with two wings," in addition to smaller products like vinegar, chicken essence, MSG, and cooking wine. Zhongju's condiments have expanded to include soy sauce, chicken essence and powder, oyster sauce, cooking wine, and rice vinegar. In 2020, Zhongju achieved operating revenue of 5.123 billion yuan, a year-on-year increase of 9.59%; net profit attributable to the parent was 890 million yuan, up 23.96%; non-GAAP net profit was 897 million yuan, up 30.07%. Among them, Meiweixian achieved sales revenue of 4.978 billion yuan, an increase of 11.42%; net profit was 939 million yuan, up 17.87% year-on-year. During the same period, Haitian's operating revenue was 22.792 billion yuan, up 15.13%; net profit attributable to the parent was 6.403 billion yuan, up 19.61%. In comparison, Meiweixian's performance growth is close to Haitian's. If the company's original park and real estate development operations, belt pulleys, and auto and motorcycle parts business are included, Zhongju's 2020 product revenue structure is as follows. Looking back at the years since the "Baoneng system" entered, Zhongju's performance growth has been relatively fast overall but not stable. In terms of growth, Zhongju is inferior to Qianhe; in terms of stability, it is inferior to Haitian. In terms of profitability, it is also inferior to Haitian and Qianhe, but vertically, profitability has been gradually increasing in recent years. By 2020, Zhongju's gross margin was very close to Haitian's, but the net margin gap remains large. As of the end of 2020, Zhongju had over 1,400 distributors, and its marketing channels had initially achieved nationwide scale. However, Haitian already had 7,051 distributors and had long achieved nationwide coverage. By region, Haitian's revenue is relatively balanced across markets, while Zhongju still relies heavily on the southern "home base" market. Moreover, in the southern market, Zhongju's revenue is only about half of Haitian's. In 2019, Zhongju proposed a five-year "double hundred" goal: from 2019 to 2023, the company will use five years, mainly through endogenous development, to grow its condiment main business; supplemented by exogenous development, such as mergers and acquisitions, to achieve annual operating revenue of over 10 billion yuan and annual production and sales of over 1 million tons. The growth logic of the condiment industry, especially the soy sauce segment, is relatively simple. For major brands, it mainly involves increasing market concentration, along with volume growth and price increases. Judging from the compound growth rate of the past few years and the company's 2021 operating target (achieving revenue of 6.1 billion yuan, a year-on-year increase of 19.06%), it is still quite difficult to achieve the goal of exceeding 10 billion yuan in revenue by 2023. Moreover, competition is intensifying. Haitian has long attached importance to household retail channels, and now its sales across all channels are balanced. In addition, Yihai Kerry, Luhua, and others are also laying out soy sauce and even various condiment businesses. These large enterprises have channel advantages. What can also help achieve this goal is exogenous development and real estate business. Previously, Meiweixian attempted to acquire the 20% stake in Chubang held by Langtian Huide, but it failed in December 2019 due to a series of reasons. Zhongju recently stated on the investor interactive platform that the company has been striving to recover the minority equity. In 2020, Chubang achieved revenue of 1.967 billion yuan and net profit of 390 million yuan. However, 20% of that, i.e., 393 million yuan in revenue and 78 million yuan in net profit, belongs to Langtian Huide. If Zhongju completes the acquisition, its performance will be significantly enhanced. In addition, Zhongju and its subsidiaries own about 1,600 mu of undeveloped commercial and residential land north of Zhongshan Railway Station (within the planned Qijiang New City area, which Zhongshan City plans to focus on developing). Zhongju stated that this will be the focus of its future urban development business. However, since the "Qijiang New City Area Plan" has not yet been finalized, there is no specific timetable for the development business. In the end, these are all unknowns at present. Source: Shijie (id:ishijie2018) Tips will be paid 400-2000 yuan if adopted.