Summary of Fuling Zhacai Conference Call Company Overview - **Company**: Fuling Zhacai - **Industry**: Pickled vegetables and condiments Key Points and Arguments Revenue and Profit Trends - In Q2 2025, Fuling Zhacai reported a revenue increase of 7.6% year-on-year, primarily driven by investments in core products like pickled mustard and new products such as spicy radish strips. However, net profit declined due to increased marketing expenses [2][3] - The company plans to continue increasing investments in Q3 to stabilize revenue while balancing profit margins [2][3] Strategic Initiatives - Fuling Zhacai is implementing a dual-driven strategy, focusing on secondary products as a key growth area. The company aims to leverage external partnerships to quickly promote these products through existing channels [2][5] - The company is gradually increasing its dividend payout ratio, aiming to provide consistent returns to investors while adjusting based on net profit performance [2][6] Product and Market Adjustments - Adjustments have been made to the wood project, including changes in product categories and raw material storage capacity to adapt to market changes. The company is increasing the production of smaller and more varied product sizes to meet consumer demand for flexibility [2][7][8] - The company has optimized its dealer network, reducing the number of smaller dealers while ensuring that larger, quality dealers take over their territories to maintain sales coverage [4][10] Financial Management - The increase in accounts receivable is attributed to the company's strategy of extending credit to select quality dealers facing financial pressure. The company expects to recover these amounts by November [2][9] - The company has seen a significant increase in marketing expenses, with sales and brand promotion costs rising by 54% and 43% respectively in the first half of 2025 [13] Market Position and Competition - Fuling Zhacai's restaurant channel has grown over 30% in the first half of 2025, although it remains a small segment with a total revenue of approximately 60 million yuan [4][11] - The company is facing intensified competition in the industry, particularly from low-cost competitors. Fuling Zhacai is responding by focusing on brand premiumization and targeting mid-to-high-end consumers [14] Cost Structure and Inventory Management - The cost structure indicates that the main raw material, pickled mustard, accounts for about 45% of total costs, with packaging at 20% and labor at 13% [15] - The company has a sufficient inventory of over 400,000 tons of pickled mustard, expected to last until mid-2026, contributing to stable gross margins [17] Future Outlook - Fuling Zhacai aims for steady growth without aggressive strategies, focusing on maintaining existing products while exploring new opportunities. The company anticipates continued product innovation and market expansion [18]

Market Overview - On September 2, the Chongqing state-owned enterprise reform sector fell by 1.11% compared to the previous trading day, with *ST Huicheng leading the decline [1] - The Shanghai Composite Index closed at 3858.13, down 0.45%, while the Shenzhen Component Index closed at 12553.84, down 2.14% [1] Stock Performance - Shanghai Sanmao (600689) saw a closing price of 13.79, with an increase of 2.99% and a trading volume of 100,200 shares, totaling 136 million yuan [1] - Chongqing Water (601158) closed at 4.74, up 0.64%, with a trading volume of 156,300 shares, amounting to 7.36878 million yuan [1] - Other notable stocks include Yuzhong Development (000514) at 5.35, down 0.74%, and Jieling Pickles (002507) at 13.25, down 0.97% [1][2] Capital Flow - The Chongqing state-owned enterprise reform sector experienced a net outflow of 178 million yuan from main funds, while retail investors saw a net inflow of 116 million yuan [2] - The table of capital flow indicates that Yuzhong Development (000514) had a net outflow of 6.6107 million yuan from main funds, but a net inflow of 6.9797 million yuan from retail investors [3] Individual Stock Analysis - *ST Huicheng (002168) closed at 4.80, down 4.95%, with a trading volume of 327,300 shares, totaling 159 million yuan [2] - Qianli Technology (601777) closed at 11.77, down 2.73%, with a trading volume of 708,600 shares [2] - Chongqing Port (600279) had a closing price of 5.51, down 0.54%, with a trading volume of 68,500 shares, totaling 3.7841 million yuan [2][3]

Investment Rating - The report gives a "Strong Buy" rating for Fuling Zhacai [4][3]. Core Views - The company reported a revenue of 1.31 billion yuan for the first half of 2025, a year-on-year increase of 0.5%, while the net profit attributable to shareholders was 440 million yuan, a decrease of 1.66% [1]. - In Q2 2025, the revenue reached 600 million yuan, showing a year-on-year growth of 7.6%, although the net profit decreased by 4.59% [1]. - The company's strategy of optimizing channels and developing new products has helped maintain the sales of pickled vegetables, with a notable increase in radish product sales by 38.35% [1][2]. - The gross margin slightly increased to 52.00% in Q2 2025, benefiting from lower raw material costs and price adjustments [2]. - The company is accelerating the introduction of new products, which is expected to drive revenue growth, with several new items already gaining popularity [2]. Financial Summary - The company expects a revenue growth of 2.98% year-on-year for 2025, with a net profit growth of 2.69%, leading to an EPS of 0.71 yuan [3][11]. - The current PE ratio is 18.89, and the target valuation is set at 23 times earnings [3]. - The total market capitalization is approximately 15.37 billion yuan [7].

Group 1 - The company has introduced 60g and 70g products to cater to different competitive regions, with a stronger presence of 70g products in areas with strong brand power and more 60g products in weaker brand regions [1] - The significant revenue growth in the radish category is attributed to a mature market that does not require consumer education and improvements in processing techniques and flavor adjustments, leading to a richer product offering [1] - The newly launched radish products, particularly the dried radish, have higher costs and are priced competitively to boost sales, resulting in a temporary decline in gross margin, which is expected to improve as sales volume increases [1] Group 2 - The company is focusing on diversifying its product offerings beyond pickled mustard tuber, with significant investment in marketing support for new categories like radish, pickled vegetables, and cowpea, aiming to build brand strength before controlling expenses [2] - The company has developed new products for the restaurant channel, including chili, sauerkraut, radish, and cowpea, which has led to over 30% growth in this channel in the first half of the year [2]

Group 1: Company Performance and Product Strategy - The company increased product optimization and development efforts in the first half of 2025, launching new products such as 60+6g and 80+8g pickled vegetables to enhance consumer value without raising prices [2] - The company reported a significant growth in revenue from the radish category, attributed to improved processing techniques and a broader product range, despite a decline in gross margin due to higher costs [3][4] - The company plans to continue product innovation and market promotion, focusing on four major business divisions to capture market share [2] Group 2: Market Adaptation and Sales Strategy - The company has adjusted its distribution strategy to respond to changes in mainstream channels, including partnerships with new retail formats like Sam's Club and Hema Fresh [2] - The restaurant channel saw over 30% growth in the first half of 2025, driven by the introduction of new products tailored for this market [10] - The company is implementing a multi-channel strategy, including direct customer engagement for customized products, which has slightly lower gross margins compared to traditional distribution [9] Group 3: Financial Planning and Investment - The company maintains a cautious approach to expense allocation, with a higher budget planned for the second and third quarters of 2025 compared to the first and fourth quarters [5] - Ongoing investment projects are progressing, including the construction of smart production facilities, with some phases already completed [6] - The company emphasizes a stable increase in cash dividends, with a commitment to providing long-term returns to shareholders [8] Group 4: Competitive Strategy and Pricing - The company is addressing competitive pressures in the pickled vegetable market by diversifying product offerings and expanding into new channels [11] - A strategy of "category expansion and channel diversification" is being executed to enhance market presence and consumer choice [11] - The company plans to offer products at various price points to cater to different consumer segments, ensuring competitive positioning [11]

Core Viewpoint - Fuling Pickle's recent semi-annual report indicates a trend of "slight revenue increase, slight profit decline," reflecting ongoing challenges in growth and market competition [1][4]. Financial Performance - The company achieved approximately 1.313 billion yuan in revenue for the first half of the year, a year-on-year increase of 0.51%, while net profit was about 441 million yuan, down 1.66% year-on-year [2][4]. - Sales expenses increased by 22.94% due to new product launches and marketing activities aimed at enhancing competitiveness in the market [2][3]. - Accounts receivable surged to 1.246 billion yuan, marking a year-on-year increase of 1421.45%, attributed to providing credit to customers to support sales [2]. Market Dynamics - The number of distributors decreased from 2,632 at the end of the previous year to 2,446 by mid-year, as the company optimized its distribution channels [3][6]. - The core business of pickles has seen revenue decline from 2.175 billion yuan in 2022 to 2.044 billion yuan in 2024, with a slight increase of 0.45% in the first half of 2025 [5][6]. Industry Challenges - The pickle market is experiencing stagnation, with a compound annual growth rate of only 1.25% from 2007 to 2021, as consumer preferences shift towards diverse options [8][9]. - The company has faced increased competition from emerging brands and changing consumer habits, particularly among younger demographics [8][10]. Strategic Initiatives - Fuling Pickle has adopted a "dual-driven" strategy of "internal growth + external expansion," planning to acquire Weizimei to enter the compound seasoning market [1][11]. - The acquisition of Weizimei, which specializes in Sichuan-style compound seasonings, is seen as a critical step to overcome growth bottlenecks [12][13]. - The company aims to leverage its existing distribution channels to enhance Weizimei's market presence post-acquisition [13]. Integration Challenges - The integration of the acquired business poses challenges due to differences in operational models, user demographics, and resource allocation [14].

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Views - The company reported a stable revenue increase in H1 2025, with revenue and net profit reaching 1.31 billion and 440 million yuan respectively, showing a year-on-year growth of 0.5% and a decline of 1.7% [4][5] - The company is actively expanding its brand promotion efforts and has adjusted its profit forecast slightly downward due to increased expenses, predicting net profits of 830 million, 900 million, and 970 million yuan for 2025-2027 [4][6] - The company is diversifying its product offerings across multiple price ranges in the pickled vegetable category, which includes various product sizes targeting different price points [5][6] Financial Performance - In H1 2025, the company's gross margin and net margin were 54.15% and 33.57%, respectively, with a slight increase in gross margin attributed to lower vegetable prices [6] - The company plans to acquire a 51% stake in Weizimei, which focuses on the B-end market and pre-prepared dishes, enhancing its channel network and long-term growth potential [7] - The company's revenue for 2025 is projected to be 2.509 billion yuan, with a year-on-year growth of 5.1%, and net profit is expected to reach 829 million yuan, reflecting a growth of 3.7% [9][11]

Market Performance - The seasoning and fermentation sector increased by 2.23% on August 29, with Baoli Food leading the gains [1] - The Shanghai Composite Index closed at 3857.93, up 0.37%, while the Shenzhen Component Index closed at 12696.15, up 0.99% [1] Individual Stock Performance - Baoli Food (603170) closed at 14.59, up 6.03% with a trading volume of 73,600 shares and a turnover of 106 million yuan [1] - Haitian Flavoring (603288) closed at 41.44, up 3.39% with a trading volume of 343,600 shares and a turnover of 1.42 billion yuan [1] - Qianhe Flavoring (603027) closed at 12.33, up 1.73% with a trading volume of 292,400 shares and a turnover of 360 million yuan [1] - Hengshun Vinegar (600305) closed at 8.40, up 0.60% with a trading volume of 179,700 shares and a turnover of 151 million yuan [1] - Anji Food (603696) closed at 13.09, down 0.08% with a trading volume of 353,200 shares and a turnover of 473 million yuan [1][2] Capital Flow Analysis - The seasoning and fermentation sector saw a net inflow of 49.09 million yuan from institutional investors, while retail investors experienced a net outflow of 35.54 million yuan [2][3] - Major stocks like Haitian Flavoring had a net inflow of 66.69 million yuan from institutional investors, while retail investors had a net outflow of 37.18 million yuan [3] - Qianhe Flavoring experienced a net inflow of 46.26 million yuan from institutional investors, but a significant net outflow of 89.25 million yuan from retail investors [3]

Investment Rating - The report maintains a "Buy" rating for the company [1] Core Views - The demand for pickled vegetables has stabilized, but increased investment expenses have put pressure on profits [1] - The company achieved a revenue of 1.31 billion yuan in the first half of 2025, a year-on-year increase of 0.5%, while the net profit attributable to shareholders was 440 million yuan, a decrease of 1.7% [5] - The core pickled vegetable business remains stable, with significant growth in the radish category due to increased promotion of new products [6] - The company is focusing on optimizing its distribution channels and expanding into new product categories, including a planned acquisition to enter the compound seasoning market [8] Summary by Sections Revenue Performance - In H1 2025, revenue from pickled vegetables, radishes, pickles, and other products was 1.123 billion, 33 million, 119 million, and 37 million yuan respectively, with year-on-year changes of +0.45%, +38.35%, -8.37%, and +9.30% [6] - Direct sales and distribution revenue were 74 million and 1.237 billion yuan respectively, with year-on-year changes of +11.13% and -0.08% [6] Cost and Profitability - The gross margin for H1 2025 was 54.15%, an increase of 3.29 percentage points year-on-year, primarily due to cost benefits from low-priced raw materials acquired in 2024 [7] - The sales expense ratio increased to 14.87% in H1 2025, reflecting higher marketing and promotional expenditures [7] - The net profit margin for H1 2025 was 33.57%, a decrease of 0.74 percentage points year-on-year [7] Growth Strategy - The company is implementing a strategy of "consolidating the foundation and expanding innovation," focusing on product optimization and channel strengthening [8] - New product launches and channel expansions are expected to drive growth, with a focus on the B-end market [8] - The planned acquisition of Weizimei aims to enhance the company's presence in the compound seasoning sector, potentially creating synergies in both B-end and C-end markets [8] Profit Forecast and Valuation - The net profit forecasts for 2025, 2026, and 2027 have been adjusted to 820 million, 879 million, and 925 million yuan respectively, reflecting a downward revision of 7%, 6%, and 7% [9] - The estimated EPS for 2025, 2026, and 2027 is projected to be 0.71, 0.76, and 0.80 yuan, with corresponding P/E ratios of 19x, 17x, and 17x [9][10]

Core Viewpoint - Fuling Pickle's stock price has declined, reflecting challenges in revenue growth and profitability amid market competition and changes in consumer behavior [1][2]. Group 1: Financial Performance - In the first half of 2025, Fuling Pickle achieved revenue of approximately 1.31 billion yuan, representing a year-on-year growth of 0.51% [2]. - The net profit attributable to shareholders was around 441 million yuan, showing a year-on-year decline of 1.66% [2]. Group 2: Market Dynamics - The number of distributors decreased from 2,632 at the end of last year to 2,446 by the end of June this year, as the company optimized its distribution channels [2]. - Fuling Pickle noted that its primary sales markets are concentrated in first-tier cities, which are experiencing a demographic shift as consumers return to county-level markets, affecting consumer habits and purchasing patterns [2]. Group 3: Marketing and Sales Strategy - Sales expenses increased by 22.94% year-on-year, attributed to enhanced marketing strategies aimed at strengthening competitive advantages in existing markets [2]. - The company implemented targeted marketing strategies in major supermarkets, convenience stores, and fresh food channels to improve product placement and conduct promotional activities [2].