ANJOY FOODS(603345)：PROFITABILITY OF MAIN BUSINESS IMPROVED IN 2Q22;XINHONGYE FOOD SUSTAINS SOLID PERFORMANCE

1H22 revenue beat market expectations
Anjoy Foods announced its 1H22 results: Revenue rose 35.47% YoY to Rmb5.28bn, attributable net profit grew 30.35% YoY to Rmb453mn, and recurring net profit increased 25.08% YoY to Rmb380mn. In 2Q22, revenue rose 46.07% YoY to Rmb2.94bn, attributable net profit climbed 43.00% YoY to Rmb249mn, and recurring attributable net profit gained 36.75% YoY to Rmb203mn. The company's 1H22 revenue and profit exceeded market expectations, thanks to improved profitability of its main business as well as Anjoy’s subsidiary Xinhongye Food’s stronger-than-expected performance.
Trends to watch
Anjoy main business: Steady growth amid headwinds; revenue portion of retail business grew; expense reduction bolstered profitability improvement. In 2Q22, revenue from Anjoy’s main’ business grew 15.3% YoY. Specifically, revenue from hot-pot seasonings and pastry products increased 9% and 30% YoY. Amid COVID-19 resurgence in 2Q22, demand from corporate clients declined, but retail sales remained strong. Among hot-pot ingredients, revenue from low-end meat products decreased 0.3% YoY, and revenue from vacuum-packed products increased 40% YoY, contributing a rising portion of total revenue. In addition, the company continued its channel expansion: Its distributors increased 71 to 1,752. In 2Q22, the company's gross margin of its main business remained flat YoY, mainly due to the doubling of freight costs. Anjoy reduced marketing staff and advertising expenses, and its main business’ recurring attributable net profit increased 31.3% YoY to Rmb195mn.
Pre-prepared food business: Crayfish sales strong; Dongpin Xiansheng product sales doubled YoY. 1) Xinhongye Food achieved revenue of Rmb911mn in 1H22, its attributable net profit reached Rmb61.4mn, and its net profit exceeded Rmb90mn (after adding back equity incentive expenses of Rmb29mn), benefiting from increased demand for processed flavored shrimp. According to Anjoy Foods’ announcement, Xinhongye Food contributed revenue of about Rmb550mn in 2Q22, slightly exceeding market expectations. Xinhongye Food’s attributable net profit reached Rmb55mn in 1H22 and Rmb12mn in 2Q22. 2) In 1H22, revenue from subsidiary Dongpin Xiansheng reached about Rmb210mn, attributable net profit equaled Rmb2.79mn, and net profit was about Rmb12mn (after adding back equity incentive expenses of Rmb12.44mn). In 2Q22, revenue from Dongpin Xiansheng totaled about Rmb110mn, with losses of about 4mn. In 2Q22, the profit margin of Dongpin Xiansheng declined QoQ mainly due to increased demand of soaked food from corporate clients and increased marketing expenses.
Demand for main business to improve in 2H22; developing a triple-brand strategy for pre-prepared food business. In 2H22, the quick-freezing food industry will enter the peak season, and Anjoy will continue to commercialize new products while penetrating into lower-tier markets. We expect the growth rate of Anjoy’s main business to reach 15-18% in 2H22. For Dongpin Xiansheng, it likely will focus on increasing sales volume of popular products and developing new products, and its revenue from the brand may maintain doubled growth. We expect Anjoy Xiaochu brand’s popular product, crispy pork slice to gain rapid sales growth in Anjoy’s distribution channels. In addition, according to Anjoy Foods’ announcement, the acquisition of Xinliuwu will likely be completed in September, ahead of schedule. The company is optimizing its crayfish business.
Financials and valuation
As Anjoy Foods’ pre-prepared food business has become a second growth driver, we raise our 2022 and 2023 revenue forecasts 1.3% to Rmb12.18bn and 3.3% to Rmb15.76bn. Considering the profitability improvement of its main business, we raise our 2022 and 2023 attributable net profit forecasts 3.5% to Rmb1.11bn and 6.0% to Rmb1.44bn. The stock is trading at 40.3x 2022e and 31.0x 2023e P/E. Given the company's growing performance and the improvement in industry demand, we raise our target price 14.5% to Rmb190 (50.3x 2022e and 38.7x 2023e P/E), offering 24.8% upside. We maintain an OUTPERFORM rating.
Risks
Volatile raw material prices; disappointing expansion of new products; COVID-19 resurgence; food safety issues.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。