GANYUAN FOODS(002991)INITIATION：GATHERING MOMENTUM FOR GROWTH WITH DEVELOPMENT OF PRODUCTS & CHANNELS

　　Ganyuan Foods, as the leader of fried beans and nuts, is on track to deliver accelerated revenue growth driven by the product side and the channel side alike. 1) The product side: Relying on its strong R&D capacity in flavored nuts, Ganyuan leads the industry in the introduction of flavored tree nuts, the shipment of which has been ramping up, while the increase in the shipment of new products from the Anyang Plant is imminent after product restructuring. 2) The channel side: Ganyuan is taking the initiative to optimize its organizational structure, step up efforts to expand the talent pool and adjust the supply chain. Sales via snack retailers, ecommerce platforms, membership supermarkets and other channels have begun to rise. At the same time, with the fall in the price of raw materials and the turnaround of the Anyang Plant and the scale effect brought by revenue growth, we feel optimistic that its profitability will gradually improve. We initiate coverage with a “BUY” rating.
　　 The R&D-driven seed nut leader making a foray into tree nuts.
　　Ganyuan Foods is mainly engaged in the production and sales of flavored seed nuts. With the Chairman’s “craftsmanship” in product R&D and the Company’s strict selection of raw materials, the flavors and tastes of its peas, shelled sunflower seeds and broad beans are excellent, making it rank first in the flavored nut industry. Based on the data from MarketIDX, the Company’s market shares of flavored nuts in Taobao and Tmall reached 25% in 2022. In the past two years, Ganyuan has made achievements in the R&D of new products: 1) Relying on its rich experience in the R&D of flavored seed nuts, it has successfully developed and launched flavored tree nut products; 2) Its Anyang Plant (in Henan Province) has developed potato chips, rice snacks, crisps and other products from scratch. From 2019 to 2021, the CAGR of the Company’s revenue/ANP was 8.0%/-4.4%, and the weak performance of the profit side was mainly due to: 1) the affected passenger flow of supermarkets by the Covid pandemic; 2) the growth slowdown of existing products and small sales volume of new products despite its fast growth; and 3) price hikes of the raw materials.
　　The hundred-billion-yuan nut market is still promising, and product innovation has expanded consumption scenarios from gift giving to leisure.
　　According to Frost & Sullivan (quoted from the prospectus of Weilong Delicious), the size of the domestic fried nut market was Rmb151.2bn in 2021, of which, the size of the seed nut/tree nut market may be Rmb55.6bn/98.3bn, respectively, per our estimates. According to International Nut & Dried Fruit Council (INC), China’s per capita consumption of tree nuts in 2019 was 71%/18% of the global average/that of the US, respectively, indicating that the domestic tree nut market still has great development potential in the future.
　　The tree nut industry will likely continue to maintain a high single-digit growth in the future, driven by: 1) The penetration of family nutrition consumption scenarios, and the continuous promotion of the tree nut penetration in community stores by enterprises such as Chacha Food; 2) With the increase　　of leisure consumption scenarios, Ganyuan and other enterprises continue to research, develop and launch the flavored tree nuts, and the industry scale of flavored nuts may increase to Rmb10bn+.
　　Ganyuan’s fundamentals will accelerate the upward trend backed by the
　　development of product side and the channel side alike.
　　The Company’s products and channels are forming a joint force, and its earnings are likely to grow at a faster pace:
　　Product side: 1) In 2022, the Company took the lead in launching the flavored tree nut products, and the rapid sales of mustard flavor macadamias in multiple channels showed its excellent product strength in a large scale. In the future, the products at different prices will be distributed in different channels; 2) Among the new products in Anyang Plant, the production of potato chips have reached full capacity, while rice snacks, crisps and other puffed snacks are undergoing product and supply chain adjustments which will likely bring growth rebound to these products in the future.
　　Channel side: In the face of fragmented channel structure, the Company has divided the original key account (KA) organizational structure into eight business departments, targeting supermarket, membership store, circulation, snack system, special channel, ecommerce and so on. Each business department is equipped with professional talents. Meanwhile, the supply chain is adjusted according to the product requirements of different channels. After the adjustment for half a year in 2022, the product stocking keeping unit (SKU) has been streamlined and the supply chain efficiency has been greatly improved, supporting the Company to actively embrace all channels.
　　Cost & profit side: Considering 1) the gradually dropping prices of palm oil, nuts and other raw materials; 2) continuous scale effect brought by the revenue increase; and 3) Anyang Plant’s gradual turnaround, we are optimistic about the Company’s continuous improvement of profitability in the future.
　　Potential risks:
　　Repeatedly affected demand due to the Covid flare-ups; significant increase in raw material costs; disappointing channel expansion; less-than-expected Anyang Plant’s new product adjustment; intensified industry competition; food quality and safety issues; loss of core personnel; less-than-expected new product R&D.
　　Investment strategy:
　　With the simultaneous development of products and channels, and the combination of raw material cost reduction and scale effect, We forecast 2022E-24E EPS to be Rmb1.83/2.69/3.66, corresponding to 49x/34x/25x 2022E-24E PE at the current price, respectively. Using the discounted cashflow (DCF) valuation method, we assign a target price of Rmb112. We believe that the growth path of Ganyuan Foods in 2023 can take that of Yankershop Food (002847.SZ) in 2022 as a reference. Yankershop promoted its ecommerce, snack system, circulation and other segments in 2022, achieving rapid growth in revenue and profits. Therefore, Yankershop’s dynamic PE provides the most important reference for Ganyuan Foods.
　　Considering that the current dynamic 37x 2023E PE (per Wind consensus estimates) of Yankershop and the growth of Ganyuan will likely be faster than its comparable peer in the next 2 years, we assign 40x 2023E PE to derive a　　target price of Rmb107. Combined the two valuation methods, we assign a target price of Rmb107 for the Company and initiate coverage with the “BUY” rating.
【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。

   【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。