2022-01-05-瑞士信贷集团-展望2022_从苦到甜_43页_1mb

China Condiment Sector Outlook 2022: From bitter to sweet

Key Summary Points

• Sector Recovery: The condiment sector is expected to rebound from a challenging 2021, with an accelerated average revenue growth of 18% in 2022, up from 6% in 2021, driven by channel destocking ending in 3Q21 and widespread price hikes announced in 4Q21.

• Margin Expansion: Gross margins are forecast to expand by 1pp YoY in 2022, supporting earnings growth of 18%-51% YoY, assuming YoY cost stabilization and effective price hikes.

• Long-Term Growth: The market is expected to grow at an 8% CAGR to 2025, with volume increasing 5% p.a., ASP rising 3% p.a., and volume being key due to foodservice demand growth. Cross-category/channel expansion and premiumisation are expected to drive growth.

• Consolidation Potential: The sector remains fragmented, with opportunities for consolidation through large players' expansion, channel shifts (e.g., catering chain growth), or mergers.

• Leading Companies: Haitian and Qianhe are top winners, with market share gains in key sub-categories. Qianhe is noted for its differentiated strategy, rising brand awareness, and expanding distribution.

• Revenue/Earnings Forecasts: Short-term YoY revenue growth for major condiment companies is expected to recover from 4Q21 onwards. Iranations of channel inventory stabilize.

• Catalysts: Price hike pass-through, demand recovery (especially in catering), cost deflation, and Employee Stock Ownership Plans (ESOP) are key positive catalysts.

• **Risks:

  • Food safety issues, currency fluctuations, and fast-changing consumer preferences could hinder short-term recovery.
  • Upside risks include better-than-expected demand from 2C, successful ESOP implementations, or cost reduction.

Investment Recommendations

• Top Picks: Qianhe (OUTPERFORM) and Haitian (OUTPERFORM) for long-term share gains.
• Selective Buys: Jonjee (OUTPERFORM) due to sector recovery, but Baoneng's liquidity issue is a concern.
• Neutral View: Yihai, affected by uncertainties in hotpot condiments and compound condiments.
• Underperform: Hengshun, with unclear strategic execution and sales team volatility.

Key Risks:

• Slower COVID-19 recovery could delay demand.
• Rising competition or food safety issues may impact profitability.
• Cost inflation or failed price hike implementation could constrain margin improvements.

Overall, the sector outlook remains positive with secular growth intact, supported by structural and cyclical recovery factors.