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作者：雷霆之怒公益服 来源：http://www.edmi.com.cn 时间：2020-02-05 22:58
The industry is in the midst of consolidationAccording to Euromonitor, China’s condiment market is still relatively fragmented, withthe top five players accounting for only a combined 20% market share in 2018. Soysauce is the largest sub-sector （43% of the total）， and Haitian is the largest player, withonly a 15.6% soy sauce market share in 2018, far less than Japan’s largest soy sauceproducer Kikkoman’s 33% in Japan. We expect Haitian and Jonjee to keep increasingtheir market shares going forward. We view the China condiment sector as still in thegrowth stage and forecast that it will rise by a 9.2% CAGR in terms of sales value in2018–21F. We initiate coverage on China’s condiment sector with an Overweight rating due toits defensive nature, high earnings visibility and strong growth potential.
We believe the China condiment sector is still in the growth stage and forecast thatcondiment demand will rise by a 9.2% CAGR in sales value in 2018–21F. And weforecast Haitian and Jonjee to achieve 20% and 21% earnings CAGR in FY18-21F.
New corporate structure to boost Jonjee’s earnings performanceAfter Baoneng Group became Jonjee’s largest shareholder, Jonjee has introduced newemployee incentive schemes to better align the interests of management with those ofshareholders and to improve its operational efficiency and margins in the long run. Weexpect Jonjee’s OPM to expand by 1.9% pts, from 20.4% in 2018 to 22.3% in 2021F.
Haitian has the highest margins and widest distribution networkHaitian’s 45.4% GPM and 29.9% OPM were the highest among the four listed condimentcompanies in 2018, which reflects its large production scale and cost-efficiency. Haitianhas the widest distribution coverage, reaching all prefectural-level cities. The next stepwill be to cover all county-level cities （70% penetration by end-2018）。 Besides soy sauce,Haitian has successfully expanded into oyster sauce sector, and it will continue topenetrate into table sauce and vinegar sectors going forward to drive up its long termgrowth.
One of the most defensive sectors when macro is weakChina’s condiment sector has very clear earnings visibility, since condiments areessential in Chinese people’s daily lives. The condiment sector is very defensive throughthe economic cycles. In 2018 and YTD 2019, the SW Condiment Index grew 11% and52%, respectively, outperforming SW F&B Index’s -22%/67% and CSI300 Index’s -25%/27% returns. The trailing P/E for the SW Condiment Index is currently at 47x.
We initiate coverage on Haitian and Jonjee with Add ratings. Our sector top pick isHaitian.
Initiate coverage with Overweight and Haitian as our sector top pickWe initiate coverage on China’s condiment sector with an Overweight rating due to itsdefensive nature through economic cycles, high earnings visibility and great earningsgrowth potential. We initiate coverage on Haitian and Jonjee with Add ratings. Our sectortop pick is Haitian. Near term re-rating catalysts include 1） likely strong 3Q19F results tobe announced before the end of Oct; 2） product portfolio diversification through M&A; and3） quicker-than-expected ex-factory price hikes. Downside risks include 1） less dining outdue to the lacklustre economy; and 2） cost inflation of major raw materials.
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