China Consumer Staples_ Snack_ Revisit industry channel reshuffle; Initiate Three Squirrels at Neutral on valuation and Buy Yanker

Industry and Company Overview Industry: China Consumer Staples, specifically focusing on the snack industry. Key Themes: 1. Channel Shift: The industry is witnessing a shift towards online and discount channels, with traditional offline channels losing market share. 2. Pricing Pressure: Both channels and consumers are adopting value-for-money strategies, leading to pricing cuts. 3. Traditional Distributors Under Pressure: Traditional offline distributors are facing challenges, with sales and profit growth slowing down. Company Analysis Yankershop Food (002847.SZ): * Rating: Buy * Key Points: * Well-positioned to capture growth in snack discounters and major SKUs. * Strong online growth and partnerships with top-tier discounters. * Healthy investment cycle and potential positive catalysts from stronger CNY sales and ongoing discounter openings. * Valuation appears attractive compared to peers. Three Squirrels (300783.SZ): * Rating: Neutral * Key Points: * Focus on new initiatives aligning with the value-for-money industry trend. * Sales CAGR expected to reach 29% over 2024-26E. * Building up in-house and margin-accretive offline business. * Valuation appears fair at the current price levels. Chacha Food Co. (002557.SZ): * Rating: Sell * Key Points: * Core business (sunflower seeds) facing sales decline. * Nuts business facing increased competition and margin dilution risks. * Structural margin dilution if nuts continue to lead the company's growth. Want Want China (0151.HK): * Rating: Sell * Key Points: * Product mix skewed to less healthy flavored milk. * Relatively conservative approach to marketing and distribution leading to market share losses and earnings deterioration. * Overseas market demand outlook relatively strong, but visibility of sales contribution of new product launches and channel expansion remains low. Additional Observations * Online Exposure: Snack companies' online exposure is still low compared to other consumer sectors, but has been on a rising trend. * Discounters: Fast store openings and consolidation in the discount channel. * Consumer Trends: Consumers are increasingly pursuing new products and new tastes, with taste and value-for-money being the most important factors for Gen Z consumers. * Distributors: Traditional offline distributors are under pressure, with sales per distributor declining in 1H24. Conclusion The snack industry in China is undergoing significant changes, with a shift towards online and discount channels, pricing pressure, and challenges for traditional distributors. Companies like Yankershop and Three Squirrels are well-positioned to benefit from these trends, while companies like Chacha Food and Want Want face challenges and risks.