Looking ahead to 2H24, we are bullish on three main investment lines:
1) Leading the high-growth track. We believe that the current high-growth track (compound growth) is expected to enjoy a valuation premium over the sector, while leading players are expected to deliver stronger performance certainty, such as soft drinks, snack companies that benefit from new channels and category-driven growth.
2) Stocks with high dividends and abundant cash reserves with potential dividend enhancement capabilities. Since the beginning of the year, some leading companies have taken the initiative to increase dividend rates and increase investor returns, and the dividend yield of some A-share leading and Hong Kong-listed food companies is still above 5%, and the future capital expenditure demand will decline, with abundant cash flow and potential dividend enhancement capabilities, such as A-share liquor, beer, etc.
3) Low valuations and expected marginal improvements. Due to the impact of sector capital flow and market sentiment, the valuation of most leading companies has fallen to below the 10% quantile in the past five years, such as liquor, dairy products, quick-frozen food, etc.
summary
The food and beverage industry recovered weakly in 1H24, with strong travel but slower than expected recovery in the catering chain, and weak recovery of beer, quick-frozen, and B-end condiments; The Spring Festival of the liquor sector slightly exceeded expectations, mainly due to the large number of people returning to their hometowns and the holiday effect, and consumption was relatively flat after entering the off-season in the second quarter. At present, the market expects a low level of the sector, and we believe that the valuation of leading companies has fallen, and the sector has long-term allocation value.
Looking forward to 2H24, we believe that the food and beverage industry is expected to achieve a moderate recovery in the context of the continuous introduction of macro policies and consumption stimulus policies, and the strength of the recovery is closely related to residents' income expectations and CPI trends. We believe that in the context of accelerating the concentration and differentiation of the liquor sector, the leading liquor companies will accelerate the harvesting of industry share, and the probability of achieving the annual performance target of the leading companies is high; In the mass goods sector, benefiting from the cost decline and efficiency improvement, the profit margin is expected to achieve a steady increase.
risk
In 2024, consumer confidence and household income levels will not recover as expected, resulting in less than expected demand; The intensification of market competition in various sub-sectors led to a decline in gross profit margin and an increase in expense ratio; Raw material prices rose more than expected.
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Liquor: The industry has entered the stage of "low expectation and weak balance", accelerating concentration and differentiation, and the leading companies still have high performance certainty and long-term value, and the current valuation is cost-effective
Liquor has a strong correlation with the macroeconomy, and the industry has entered a "weak balance" stage, with overall steady growth. The consumption scenarios of the leading liquor companies are mainly business consumption and public banquets, so there is a strong correlation between demand prosperity and macroeconomic activity. Since the beginning of this year, the mainland's social finance, manufacturing PMI and price data have been under pressure to a certain extent, and the sales expenses of listed companies in all industries in 1Q24 have been flat and slightly decreased year-on-year, reflecting the weak economic recovery and the "weak balance" of the liquor industry, that is, the industry prosperity is in a slow recovery stage with the economy, and the supply and demand of mainstream brands are basically balanced (except for Moutai, which is disturbed by multi-dimensional short-term factors); The expectations of channels in the industry are not high, but the industry as a whole can still achieve steady growth driven by leading companies and accelerate centralized differentiation.
Chart: YoY of sales expenses and liquor industry revenue of listed companies in all industries
Source: iFinD, CICC Research
Judging from the performance of the liquor sector in the first half of the year, the strong consumption during the Spring Festival slightly exceeded expectations, the off-season in the second quarter turned weak, and the unexpected decline in Moutai's batch price caused pessimism in the market. Benefiting from the large number of people returning to their hometowns and the festival effect during the Spring Festival, the strong consumption of liquor slightly exceeded expectations, and the consumption was relatively flat after entering the off-season in the second quarter; In terms of scenarios, the number of wedding banquets declined, mainly due to the high base under the banquet replenishment effect in the same period last year, while other types of banquets such as baby banquets, full moon banquets, and birthday banquets increased, which played a certain role in supporting the demand for banquets, and the demand for business and gifts was still in the stage of slow recovery. This year, the consumption of liquor is characterized by more concentration in the peak season, and the pace of channel stocking for the peak season has shifted back. Moutai was affected by the weak demand in the off-season, the subsidies of the 618 e-commerce platform, and the dumping of goods by social dealers, and the batch price has fallen rapidly since June, causing pessimism in the market.
The short-term rapid decline in Moutai's batch price is mainly due to factors such as weak demand in the off-season, subsidies on 618 e-commerce platforms and concentrated selling of goods by speculators, and the adjustment of supply and demand of manufacturers is the key to the subsequent trend. Since the second quarter, the consumption of liquor has been weak, the 10 billion subsidies on the 618 e-commerce platform and the concentrated dumping of speculators have caused a rapid decline in the batch price of Feitian Moutai in the short term, according to our research, the stock and transaction volume of Moutai low-priced goods in the actual market are small, and the first-level dealers of Moutai have basically not participated in this wave of low-price shipments, and the sources of low-priced goods are mainly speculators, Guizhou state-owned channel goods and platform subsidies. At present, the company has introduced measures to stabilize prices, including suspending 1,499 yuan corporate group buying and online delivery of 375ml Xunfeng wine[1], and convening a meeting of distributors to maintain prices.
Chart: Boxed Feitian batch price
Note: The batch price data is as of June 19, 2024
Source: Today's Wine Prices, CICC Research
Chart: Bulk flying lot price
Note: The batch price data is as of June 19, 2024
Source: Today's Wine Prices, CICC Research
Except for Moutai, the batch prices of other mainstream brands remained stable, the channel inventory was still at a reasonable level, and the dynamic sales were concentrated in the head brands. Since the second quarter, Wuliangye has firmly controlled the price of goods, the confidence of the channel has recovered, the batch price has remained stable, and the batch price of other mainstream brands has also remained stable. From the inventory point of view, after a wave of inventory removal during the Spring Festival, the inventory in the off-season has accumulated, and the overall inventory of dealers is at a reasonable and high level, but the inventory of large single products in circulation remains low, and the differentiation is more obvious. The overall dynamic sales of the terminal are stable, and the brands with fast dynamic sales flow (Mao Wujian) or better dynamic sales growth (Fenjiu Yingjia Gujing Jinshiyuan) maintain a benign state of channels.
Chart: Wuliangye batch price
Note: The batch price data is as of June 19, 2024
Source: Bairong Wine Price, CICC Research
Chart: National Cellar 1573 lot price
Note: The batch price data is as of June 19, 2024
Source: Today's Wine Prices, CICC Research
The demand of the liquor industry is not strongly related to a single industry, but is related to economic activity, and the demand for business exchanges brought about by the rise and fall of the industry and the upgrading of mass consumption continue to exist. We believe that there is no absolute strong correlation between the demand of the liquor industry and the real estate industry, and it does not depend on any single industry, but is related to economic activity. When the economy is prosperous and business and interpersonal exchanges are active, business consumption scenarios will increase, and economic development will bring about an increase in residents' income and consumption upgrades, resulting in an increase in consumption and price for public banquets and gatherings. With the transformation of China's industrial momentum, emerging industries have replaced traditional industries as the new driving force of the economy, and the stage of economic activity can also bring about the prosperity of the liquor industry. For example, in the past three years, the rapid development of new energy, photovoltaic and other industries in Anhui Province has driven the upgrading of local liquor consumption faster than that of the whole country, and Huijiu enterprises such as Gujing and Yingjia have achieved rapid development.
Judging from the performance of the first quarter, the industry accelerated the concentration and differentiation, and the leading wine companies with excellent fundamentals maintained steady growth. The 1Q24 results show that the industry concentration and differentiation are accelerating, and the leading companies have strong brand power and the right strategic direction, that is, in the current environment, they can pay attention to maintaining a benign market state and a balance between volume and price, so as to achieve sustainable and steady growth; However, the performance of companies with heavy market burdens due to the lack of accumulation of brand power and the growth of the pressure model in the past two years has put pressure on the performance. The consumption of liquor at all price points and in major regions of the industry has accelerated to the top concentration. 2Q24 consumption is weak, but the second quarter accounts for a relatively small proportion of the annual liquor consumption, and most of the head companies have successfully completed more than half of the annual payment progress, we expect that the overall performance of 2Q24 liquor can achieve a smooth transition, the second half of the Mid-Autumn Festival and National Day is expected to continue the steady trend, and the leading companies have a high probability of achieving the annual performance target.
Chart: 1Q24 performance of major liquor listed companies (unit: 100 million yuan)
Source: Company announcement, CICC Research
We believe that the current liquor industry is in the stage of "low expectations and weak balance", and the prosperity is related to the macro environment, but the concentration and differentiation of liquor consumption is accelerating, and leading companies with brand, strategic and organizational advantages are accelerating to seize share, and the certainty of short-term and long-term performance is still strong. At present, the price-earnings ratio of the liquor sector is at the 4% quantile since 2018, and the valuation of leading companies has a high cost performance. Considering the current background of accelerated industry differentiation and the valuation level of various wine companies, we recommend focusing on two main investment lines:
► 1) The market is in excellent dynamic sales state, benefiting from the solid advantages of its own brand, fragrance or base market, and the company has upward operating potential.
► 2) A liquor leader with deep brand barriers, outstanding long-term competitive advantages, and outstanding valuation and cost performance after the stock price correction.
Chart: The overall PE (TTM) of liquor is at the 4% quantile since 2018
Note: Data as of June 19, 2024
Source: Wind, CICC Research
Chart: Foreign shareholding ratio of Moutai and Wuliangye
Note: Data as of June 19, 2024
Source: iFinD, CICC Research
High-end: Moutai emphasizes stable, healthy and sustainable development, Wuliangye controls goods at firm prices and operates in a stable state. At this year's shareholders' meeting, the new chairman of Moutai emphasized the company's stability, health and sustainable development, and when there are contradictions and conflicts in development, "output obeys quality, efficiency obeys quality, and speed obeys quality". [2] Recently, the company has introduced a number of supply-side adjustment measures to pay more attention to high-quality development. Since the beginning of this year, Wuliangye has reduced the volume of Puwu traditional channels by 20%, and the price control of goods in the off-season is firm, and the batch price has a steady upward trend, and the company has alleviated the pressure on the volume and price of Puwu through a more balanced product strategy. Laojiao focused on consumer bottle opening this year, and expanded channel increments through the "well digging action".
Chart: The market action of Moutai, Wuliangye, and Luzhou Laojiao since 2024
Source: Company Announcement, Wine Industry, CICC Research
Sub-high-end: The overall price is under pressure and differentiation, and the share of Fenjiu continues to increase. In the past two years, the overall expansion rate of the price range has slowed down and the competition has intensified. Benefiting from a deep brand foundation, differentiated fragrance advantages and refined market management, Fenjiu has quickly harvested the market share of business banquet scenes, and its business status has improved.
Chart: Acceleration of sub-high-end price concentration to the top (by revenue market share)
Source: Company announcement, CICC Research
Real estate wine: regional leaders still benefit from the dividends of the local consumption environment and the increase in market share, and Gujing is riding the growth potential of today's world. Anhui liquor consumption upgrading momentum leads the country, Gujing and Yingjia product structure continues to upgrade, and benefiting from the accelerated concentration of consumption in the province, the market share of Gujing and Yingjia continues to increase, and it is in the stage of steady and rapid growth in revenue and continuous rise in profit margin. Today's business strategy is clear and the market expansion is steady and steady, and the product structure shows the characteristics of "fast at both ends and stable in the middle", and the self-order rate of consumers in central and southern Jiangsu has increased rapidly, and it continues to seize the share of competing products.
Sauce wine: The penetration rate of consumers is still improving, the growth rate is good under the low base in the first quarter, and Zhenjiu is still in a period of benign expansion. In the first quarter of 2024, Zhenjiu, Jinsha, and Yelanggu achieved high growth from a low base last year. We believe that the soy sauce wine industry as a whole has not yet been adjusted, and is currently in the stage of continuous differentiation, and the brand recognition, channel network, organizational personnel, and consumer cultivation of the leading companies continue to improve, and will benefit from the increase in the dividend and market share of the soy sauce wine category in the future, and maintain a stable performance. Under the better organizational mechanism, Zhenjiu Liquor continues to deepen consumer cultivation and channel expansion, and its market sales and inventory are relatively benign in the soy sauce wine category, which is still in a relatively healthy expansion period.
Chart: Sub-high-end 300-500 yuan price competition pattern by revenue
Note: For 2023 data, the red label is the soy sauce wine brand and its market share
Source: Company announcement, CICC Research
Chart: Competitive landscape of sub-high-end 500-800 yuan price range (by revenue)
Note: For 2023 data, the red label is the soy sauce wine brand and its market share
Source: Company announcement, CICC Research
In the long run, the total sales volume of the industry will decline but the trend of price increase will continue, and the overall revenue of liquor will grow steadily, and there is room for further improvement in concentration. In 2022 and 2023, the output of the liquor industry will decrease by 5.6% and 5.1% year-on-year respectively, but consumption will be concentrated in higher-priced high-quality brands, so the industry will continue the trend of price increase, and the overall revenue will maintain a steady growth of about 10%. In 2023, the revenue of the liquor industry CR5/CR10/CR15 will be 44%/51%/54% respectively, and the sales volume CR5/CR10/CR15 will be 12%/17%/19% respectively (excluding the sales volume of low-priced brands such as Niulanshan), which still has room for further improvement in benchmarking the international mature consumer goods industry. We believe that the demand for liquor in business exchanges and other scenarios is still rigid, and the upgrading of mass consumption such as banquets, gatherings, and self-drinking is still there, and the leading companies can maintain higher growth than the industry in the future, but it is expected to enter a stage of steady growth with the increase in volume and scale.
The leading liquor company has strong profitability and stable operation, abundant cash flow, and there is room for gradual improvement in the ability to pay dividends in the future. At present, the average dividend rate of the liquor industry is about 50%, of which Moutai, Wuliangye, Laojiao, Yanghe, Jinhui Liquor, Laobai Dry Liquor and other companies will have a dividend rate of more than 60% in 2023. We expect that most of the capital expenditure projects will be completed in 2025-2026, and the dividend rate of liquor leaders is expected to gradually increase to a high level in the medium and long term.
Chart: Dividends and capital expenditures of liquor companies
Note: Data as of June 19, 2024
Source: Company announcement, CICC Research
Beer: 1H24 performance was weaker than expected, looking forward to the 3Q24 peak season performance
1H24 review: Weaker-than-expected volume growth and significant improvement in profitability. In 1Q24, the beer industry continued to upgrade, and the sales performance was under pressure under a high base, but the structural optimization led to a year-on-year increase in ASP, and the decline in the price of raw materials such as barley led to the improvement of gross profit margin, and the profitability exceeded market expectations. After entering the second quarter, affected by weak consumer demand and rainy weather in South China, the performance of the sales side was lower than the market expectation that the growth rate gradually improved at the beginning of the year, and the ultra-high-end price band was under pressure in the structure, the price band of 6-10 yuan continued to expand, and the price band below 6 yuan maintained a shrinking trend, with the gradual exhaustion of raw materials in 2023, the cost per ton of the head enterprises in 2Q24 may be greater than that of 1Q24, and the profitability will continue to improve.
2H24 outlook: pay attention to the sales performance of peak season + sports season, and the certainty of profitability improvement is high. From the demand side, the 3Q24 industry is about to enter the peak season, superimposed on the gradual decline of the base in the same period, the arrival of sports events, or to support the steady sales and structural upgrading of the continuation logic, it is recommended to pay attention to the follow-up demand side dynamic sales and structural marginal changes. From the perspective of the supply side, companies pay more attention to profit growth, have higher planning for mid-to-high-end products, high-end is still the main line of the industry, and the intensity of industry competition has not been significantly strengthened, and we expect that the cost will be more controllable. Coupled with the steady decline in raw material prices, we expect the performance of leading companies to maintain double-digit growth.
Valuation: The current valuation of beer has been at a reasonably low level, and it is recommended to upgrade the leading target with stability in the medium and long term. Due to the market's concern that the slowdown in beer consumption demand will lead to lower than expected earnings growth, the current valuation of beer faucets has fallen to a historically low level, and the valuation has fully reflected the pessimistic expectations for beer consumption upgrades.
Chart: P/E valuations of beer companies
Note: The time period is from January 5, 2005 to June 20, 2024, and if it is not listed in 2005, it will be from the date of listing
Source: Wind, CICC Research
Dairy products: The pace of operation is expected to return to normal in the second half of the year, and the medium-term investment value of leading dairy enterprises is highlighted
In the short term: the business rhythm is expected to return to normal in the second half of the year, and the industry is expected to usher in marginal improvement
At present, the industry is facing the dilemma of oversupply in the upstream and weak demand in the downstream, and it is expected to usher in marginal improvement in the second half of the year. Due to the lack of overall consumer confidence and weak demand in the dairy industry, the demand for dairy products has weakened rapidly after the Spring Festival, and the channel is facing problems such as high inventory and elongated product freshness after the holiday. According to the National Bureau of Statistics, the dairy industry output from January to May was -2.4% year-on-year, which was affected by the fact that the revenue of Yili liquid milk in 1Q was -6.8% year-on-year, and the revenue of bright liquid milk was -13.7% year-on-year. At the same time, the upstream deflationary environment caused by the oversupply of raw milk has also caused price pressure on the industry. Our grassroots research shows that the sales performance of leading dairy enterprises in April is under great pressure, and the month-on-month improvement in May is still under pressure, and the freshness of the current channel has improved significantly, and we expect that the industry is expected to end the destocking adjustment in the second half of the year and enter the normal delivery rhythm, and the revenue side of leading dairy enterprises is expected to usher in marginal improvement.
On the cost side, according to the data of the Ministry of Agriculture, the price of raw milk in 1Q/April-May fell by 11% and 12.5% year-on-year respectively, and the decline further expanded, and we expect that the gross profit margin of leading enterprises in 1H24 is expected to benefit from this; However, the oversupply of raw milk has brought pressure on the price of terminal products and the pressure on the powder spraying of leading dairy enterprises, and at the same time, the scale effect of industry revenue growth has weakened this year, we judge that it may cause some disturbance to the net profit margin of leading dairy enterprises in 1H24, and leading dairy enterprises are expected to maintain stable profit margins throughout the year. At the same time, we judge that the upstream pastures are expected to accelerate the clearance from 3Q24, mainly because the one-time storage of silage corn will concentrate on the consumption of cash flow to accelerate the exit of small and medium-sized pastures, and the upstream demand is expected to achieve a basic balance between supply and demand in early 25, and the price of raw milk is expected to stop falling and stabilize, easing the ASP pressure on the industry, so we judge that the leading dairy enterprises in 25 years are expected to return to the profit margin improvement channel.
In the medium term, there are still structural growth opportunities in China's dairy industry, and leading dairy companies are expected to highlight their value through high-quality development and improved shareholder returns. Although the overall dairy industry is facing temporary weakness in consumption, compared with overseas developed markets, we still have a large room for per capita consumption improvement in sub-sectors such as dry dairy products and low-temperature dairy products, and we believe that there are still structural growth opportunities in the dairy industry, but the liquid milk sector, which accounts for a large proportion, is expected to remain stable in the future. In the medium term, we expect that leading dairy companies are expected to achieve high-quality development in the context of slowdown by improving product structure, further leveraging scale advantages, and improving the efficiency of cost delivery. At the same time, the peak period of industry investment has passed, and we expect that leading dairy companies are expected to significantly reduce the level of capital expenditure and improve shareholder returns (dividends + buybacks) in the future, and we believe that the value of dairy investment is highlighted.
Chart: Capital expenditure of Yili and Mengniu from 2016 to 2023
Source: Company announcement, CICC Research
The current valuation of the main targets in the sector is slightly lower than the historical average. We believe that in the medium and long term, the profit margin improvement trend of dairy enterprises remains unchanged, the cash flow of leading dairy enterprises is stable, the dividend income is attractive, and considering that the industry is expected to return to normal operating rhythm in the second half of the year, there is still room for short-term and medium-term improvement in the valuation of dairy enterprises.
Chart: P/E valuations of dairy companies
Note: The time period is from January 4, 2010 to June 20, 2024
Source: Capital IQ, CICC Research
Soft drinks: The industry's dynamic sales continue to have a good trend, and the cost pressure is expected to ease in 2H24
In the short term, the industry continues to have a good trend of dynamic sales under the favorable travel scenarios and new products. With the catalysis of travel scenarios and the continuous promotion of new products such as sugar-free tea and electrolyzed water, and the promotion of Spring Festival gift boxed products by many beverage companies during the Spring Festival, the 1H24 soft drink sector will continue the consumption trend in 2023 and maintain good sales, especially tea drinks, packaged water and fruit juice drinks. According to CICC supermarket data, from January to April 2024, the sales of tea drinks/packaged water/juice drinks supermarket channels were +9.3%/+7%/+5.1% year-on-year. At present, the beverage industry is gradually entering the peak sales season, although the rainy weather in some areas has a slight impact on beverage consumption, but we expect to benefit from travel and new product promotion, the beverage industry is still expected to achieve steady growth in 2Q24. Our grassroots research shows that the sales of Dongpeng beverages in 2Q24 still maintained a strong growth trend in 1Q, and the sales of Nongfu, Tongyi and Master Kong beverages also maintained a steady growth trend. Looking forward to 2H24, we expect that the sales of the travel and new product promotion industries are expected to continue to grow well, outperforming other consumer goods, and we recommend paying attention to the performance of beverage sales in the peak season.
Chart: Year-on-year growth rate of supermarket channel sales in the beverage industry from January to April 2024
Source: National Chain Store Supermarket Information Network, CICC Research Department
Cost pressures are expected to ease further in 2H24, and profit margins are expected to improve in 24. On the cost side, PET, sugar, and corrugated paper are the main raw materials for beverages in the industry, accounting for double-digit proportions of the cost. At present, PET prices are gradually getting rid of upstream supply-side disturbances and crude oil prices are repeated, and the price remains low at about 7,000 yuan/ton in 1H24; The strength of white sugar prices in 2023 has caused adverse disturbances to the gross profit margin of beverages, since 4Q23 white sugar prices have fallen month-on-month, although 1Q24 white sugar prices have still increased by 8% year-on-year, since 2Q24 year-on-year -7%, considering the release of white sugar supply and relatively weak demand, we expect 2H24 white sugar prices to decline year-on-year; The price of corrugated paper in 1H24 has dropped significantly, and we expect that 2H24 is also expected to remain relatively low. Overall, considering the decline in the cost of low-priced PET, white sugar and cartons, we expect that the cost pressure is expected to be further eased in 2H24, and the increase in gross profit margin of beverage companies in 2H24 may be expected to drive the improvement of net profit margin.
In the medium and long term: we are optimistic about the industry's new promotion to accelerate the overall demand, and continue to be optimistic about the high-prosperity tracks such as sugar-free tea, energy drinks, and packaged water. In the medium and long term, we believe that the long-term trend of a healthy and younger industry will remain unchanged, and the pace of industry innovation will accelerate after 2021, and more attention will be paid to category innovation rather than flavor promotion, which will play a good role in supporting consumer demand. In the medium and long term, we are still optimistic about the recovery of the growth rate of basic flavor beverages under the industry's new promotion and activation, and continue to be optimistic about the high-prosperity tracks such as sugar-free tea, energy drinks, and packaged water: 1) Sugar-free tea: With the trend of healthy industry, the sales of sugar-free tea in mainland China will account for about 14% in 2023 (Euromonitor data), compared with the proportion of sugar-free tea in Japan accounting for 80%+, we expect that the proportion of sugar-free tea is expected to continue to increase in the future; 2) Energy drinks: The per capita consumption of energy drinks in China has greater room for improvement than that of Japan and the United States, and the continuous expansion of consumer groups and the increasing diversification of consumption scenarios will drive the penetration rate of energy drinks to continue to increase. 3) Packaged water: With the improvement of consumers' health awareness and the deepening of the substitution of packaged water for tap water and other domestic water, we expect that packaged drinking water may continue to maintain high growth potential, especially for medium and large packaged products.
Chart: P/E valuations of soft drink companies
Note: The time period is from January 4, 2010 to June 20, 2024
Source: Capital IQ, CICC Research
Frozen food: demand is slowing down, focusing on cost-effective leaders
1H24 review: demand performance is high before and then low, and the performance of the profit side is differentiated. From the demand side, from January to February, affected by the staggered Spring Festival and strong holiday demand, the demand performance of the quick-frozen industry was stable, but after entering the off-season, especially from April to May, the performance of the company and catering weakened, and the growth of demand for quick-frozen food also slowed down. In terms of products, the performance of hot pot ingredients is still better than that of rice noodles, and the crayfish in prefabricated dishes is affected by the oversupply of the procurement side, and the price of crayfish semi-finished products is still under pressure. In terms of channels, the performance of the B-end weakened with the slowdown in the growth of catering, among which the growth of the large B-end was weaker than expected at the beginning of the year due to the downstream competition squeezing out the upstream profits and the intensification of supply-side competition. From the profit side, the cost of raw materials is still at a low level, and the industry benefits, but the impact of competition on the C-side, especially rice noodles, has led to pressure on the profitability of the enterprise side, and the large B-end has passed on the competitive pressure to the upstream, which has also put pressure on the profitability of the upstream supply side.
2H24 outlook: pay attention to the performance of the catering side, and the profitability of the leading company is expected to be maintained. On the income side, quick-frozen food is limited by the demand of catering and family kitchen scenes, and is also restricted by scene β in the second half of the year, but 4Q23 is affected by the staggered Spring Festival and the channel stock is low, and the apparent growth rate in 4Q24 may improve. On the profit side, the low trend of the cost side continues, and the competition on the supply side may still take time to digest under the weak β.
Valuation: The valuation of the sector is at a low level, and it is recommended to pay attention to the leaders with resilient profitability and high margin of safety. Under the weak reality and weak expectations, the valuation of the sector is adjusted downward, from the perspective of historical valuation and absolute value, it is at a low position, and the PE valuation of leading enterprises is between 10-15 times, which has reflected the pessimistic expectations of the market. According to Bloomberg, the valuation of overseas quick-frozen leading enterprises in the mature period is between 15-20 times, compared with the domestic quick-frozen faucets still have room for growth, and the medium and long-term valuation is cost-effective, and it is recommended to pay attention to the faucets with strong resilience and high safety margin.
Condiments: Demand bottoms, focus on structural opportunities
1H24 review: the performance of the demand side is stable, the cost is declining + the management is improving, and the profitability is improving. Excluding the impact of the Spring Festival staggered period on sales, the performance of basic condiments in 1H24 was stable, of which the zero-added products were better than the whole, the polyphony continued the growth trend, and the channel performance of the large B-end benefited chain trend was better. From the perspective of month-on-month trends, after entering 2Q24, the growth rate of catering and commodity retail has slowed down, and although the overall number of catering stores has increased, the number of stores closed from January to May has increased by 27% year-on-year, which also reflects the trend of weak consumer demand. From the perspective of profits, benefiting from the decline in the price of raw materials such as soybeans, as well as the reform and efficiency improvement of leading enterprises under the pressure of total volume, the profitability of listed condiment companies has generally improved.
Valuation: The valuation of the condiment sector is at a historical low in the past five years, and it has medium and long-term layout value. At present, the PE valuation of the condiment sector has fallen below the 5% quantile of the past five years, which has long-term allocation value.
Chart: F&B stores still maintain a high closure rate, but the total volume has improved
Source: Dianping, CICC Research
Snack food: 2H24 channel differentiation continues, and the demand for "cost-effective" is strong
In 2H24, channel differentiation continues, and emerging channels are still growing. In addition, casual snacks meet the emotional needs of consumers and the unit price is low, so the overall demand is relatively stable, and the sales of "cost-effective" products are more popular.
Representative emerging channels: 2024 is still in the growth period of staking land, and we expect the penetration of the northern region to accelerate in 2H24. According to the official official account of Snack Very Busy, as of June 12, 2024, the total number of stores of Ming Ming Very Busy Group (Snack is Busy + Zhao Yiming) exceeds 10,000 stores, and we expect that 2H24 will continue to strengthen the expansion of the northern market and the deep cultivation of the southern market. The demand for differentiated quality-price ratio continues, and Sam's stores continue to develop. According to Walmart China's WeChat official account, the number of Sam's stores has grown from 31 in 2020 to 47 in 2023 (an increase of 5-6 per year), and the company plans to open 6-7 new Sam's stores every year in the future. Including short video e-commerce, Pinduoduo, etc., continue to grow.
Snack food: The demand for "cost-effective" in 2H24 is relatively strong, the Chinese snack market is fragmented, and listed companies continue to increase their market share by deploying new channels, expanding new products, and optimizing the supply chain. In the second half of the year, we will gradually enter the peak season of leisure snacks, and we expect demand to improve quarter-on-quarter in 3Q-4Q.
In 2H24, companies with new channels and new product layouts will maintain rapid growth. 2Q is a relatively off-season for the snack industry, and we expect the year-on-year revenue growth of snack food companies to slow down compared with the year-on-year growth rate in 1Q. We expect that some companies will benefit from the penetration of new channels (such as live-streaming e-commerce, snack mass merchandisers, member supermarkets, quantitative distribution and other channels) and the expansion of new products (bulk specifications, large packaging specifications, etc.), and the year-on-year revenue growth rate in 2H24 is expected to maintain rapid growth.
The three squirrels achieved phased results at the Douyin 2024 New Year Festival.
Halogen products: In 2024, the business focus will be on improving the quality of existing stores, and in 2H24, we will focus on the restoration of single stores and the same store
Halogen products: In 2024, the core business goal of representative halogen products brands is to improve the quality of existing stores, and we expect that the single-store same-store revenue of representative brands in 1H24 will still be under pressure in the context of declining offline traffic, and we need to pay attention to the recovery of offline store traffic, that is, the recovery of overall consumption power, in 2H24. In 2024, the halogen products industry will focus on improving the quality of store operation, and will not have too high requirements for the number of exhibition stores. We expect that due to the current weak recovery of the demand side and the increase in competition between different categories of offline stores, the offline store traffic of leisure halogen products will be under pressure, and representative companies are also increasing customer flow through online (such as takeaway, short video, membership activities), and in addition, some low-price and cost-effective products will be added to adapt to the current consumption environment. Brands of marinated food products have also consolidated family consumption scenarios through set meals, mixed dishes, etc., and increased incremental scenarios such as takeaways.
The cost of duck by-products has fallen from the previous quarter in 2023, and we expect the cost of duck by-products, beef and other raw materials to fall year-on-year in 2024.
Baking chain: Channel differentiation will continue in 2024, and 2H24 needs to pay attention to product upgrading and channel penetration
In 1H24, the baking industry as a whole showed a relatively weak recovery, and the channel performance was differentiated. The traffic of traditional bakery shops and traditional supermarkets has been diverted, and the demand for member supermarkets, catering and tea 2B channels and emerging snack discount store channels is relatively strong. We expect this trend to continue in 2024. 1) The demand for member supermarkets Sam's and Hema bakery areas is relatively stable, and upstream quality frozen bakeries are relatively beneficial. 2) Catering and tea channels: As an incremental channel for bakery categories, we expect the penetration rate of bakery products to continue to increase in 2H24, especially in hotels, milk tea and tea, and Western-style fast food catering. 3) Snack discount stores: The traffic is strong, but the store system is mainly based on medium-term packaging baking, and it is difficult to connect short-term packaged bakery products with the snack wholesale system in terms of supply chain distribution. 4) Bakery shop: We expect that the revenue of bakery shops will still grow by single digits in 1H24, but it will still be a relatively weak recovery, and the recovery of consumption power needs to be observed in 2H24. 5) Traditional supermarkets: The traffic of traditional supermarkets has been diverted, and the growth of packaged bakery products is relatively under pressure.
Product side: In 2024, domestic cream and milk-based products will have greater market opportunities, and frozen bakery products are also expected to increase penetration in the catering and tea channels. 1) Domestic cream products have obvious cost-effective advantages compared with imported brands, and the competitive advantage of domestic products is obvious in the context of high overseas raw material prices and high transportation costs, and we expect that domestic cream is expected to maintain a relatively rapid volume in 2H24. 2) Milk-based products have room for innovation and penetration, such as light milk series and flavor series milk substrates can penetrate into the tea channel. 3) Frozen bakery products: products have a broad penetration space in hotels, milk tea and tea, Western-style fast food catering, etc., but it is necessary to pay attention to product quality upgrades.
Meat products: The year-on-year growth rate of meat product sales in 2H24 may improve
Meat products industry: Due to relatively weak consumer demand and relatively low pig prices, we expect domestic meat product sales to be under pressure year-on-year in 1H24, and the year-on-year growth rate of sales in 2H24 is expected to improve. According to the data of the national supermarket network, from January to April 2024, the GMV of the meat products industry was -10.9% year-on-year (of which the sales volume was -10.6% year-on-year), of which the GMV of the representative brand Shuanghui was -9.8% and the sales volume was -10.4% year-on-year.
Slaughtering: We expect the average profit of the slaughtering business to be under pressure year-on-year due to relatively fierce competition.
Risk Warning
Demand in 2024 will be less than expected due to the slower recovery of consumer confidence and residents' income levels: Affected by the macroeconomy, residents' consumer confidence and spending power are weak. If the recovery of terminal demand in 2024 is not timely, the growth of the food and beverage industry may be limited.
Intensified market competition in various sub-sectors leads to a decline in gross profit margin and an increase in expense ratio: Limited by the slow recovery of the demand side, the intensification of competition on the supply side, the inventory pressure may turn into price pressure, and the rate increase brought about by the consumption incentives and channel expansion promoted by enterprises, the profit margin of enterprises may be under pressure.
Raw material prices have risen more than expected: Affected by the global climate, domestic and foreign supply and demand relations, etc., raw material prices may remain high, and it will be more difficult to predict subsequent changes, which may affect the gross profit margin of related enterprises.
[1]https://baijiahao.baidu.com/s?id=1802099068994378743&wfr=spider&for=pc
[2]https://www.thepaper.cn/newsDetail_forward_27551898
Article source:
This article is excerpted from: Food & Beverage 2024 Second Half Outlook: Expected Low, Stable and Progressive, which was released on June 25, 2024
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