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Core views:　　Qianhe is the pioneer in zero-additive soy sauce and has been developing rapidly into a top-notch player among the latecomers in condiments. Zero-additive soy sauce has entered the stage of fast growth, and Qianhe boasts first-mover advantage and differentiated competitiveness. The Company is likely to maintain rapid growth in the short term amid channel expansion, while long-term challenges and opportunities will likely coexist along the way due to the entry of leading players and changes in sales channels. We assign 53x 2023E PE to derive a target price of Rmb20 and initiate coverage with an “OVERWEIGHT” rating.　　Abstract:　　As a pioneer in zero-additive soy sauce, Qianhe has been growing rapidly backed by differentiation. Qianhe started with caramels and created zero-additive soy sauce in 2008. Based in East China, it later started nationwide expansion in 2013, growing rapidly through differentiation. In 2021, its revenue/net profit reached Rmb1.92bn/0.22bn, implying a 2016-2021 CAGR of 20%/17%, with soy sauce/vinegar revenue at Rmb1.18bn/0.32bn. Its cooking wine revenue recorded Rmb0.11bn in 2020, while its zero-additive/highly tasty soy source contributed 52%/22% of the total soy source revenue, respectively. The equity incentive plan guided Qianhe to achieve revenue/net profit of over Rmb3bn/0.5bn in 2024.　　Sauce/vinegar/cooking wine are high-quality niches, and zero-additive soy sauce has promising growth prospects. In 2020, the market size of the condiment industry reached Rmb350bn-400bn. As high-quality niches in condiments, soy sauce/vinegar/cooking wine/oyster sauce posted market size of Rmb65bn/17.5bn/13bn/7bn, respectively. The market size of the soy sauce industry may record a 2020-2025 CAGR of 6% (4% for shipments/2% for prices), and consumption upgrading will continue to drive industry growth. By recapping the development of Japan’s soy sauce industry, we noticed that there were four rounds of product upgrades that pushed the average selling price (ASP) of soy sauce to rise, and many basic products meet the requirements of zero additives. China’s zero-additive soy sauce is the middle of rapid development. Its market size reached Rmb0.9bn in 2020, and we expect it to rise to Rmb6bn-7bn by 2025 at a CAGR of 46%-51% with a potential to exceed Rmb10bn in the long run. The competitive landscape of the soy sauce industry is clear: Haitian Flavoring’s market share is 21%, while the market shares of companies ranked from 2nd to 6th are around 2-5%. Qianhe’s market share is currently ranked 7th and is likely to grow rapidly amid the zero-additive tailwinds to enter the list of tier-2 companies going forward.　　Qianhe has been stably promoting nationwide expansion via zero-additive-themed marketing. 1) Qianhe Focused on zero-additive and highly tasty products to build product differentiation. Zero-additive soy sauce is characterized by high amino acid nitrogen content, using only essential raw materials, and has good value-for-money. At the same time, using defatted soybean as main raw materials of soy sauce gives Qianhe a cost advantage. 2) Qianhe’s zero-additive-themed marketing gains momentum for promoting products. It invested heavily in advertisements and shopping guide marketing in supermarkets and continuously iterated marketing strategies to form an accurate coverage on target customers with an aim to quickly enhance brand recognition. 3) Qianhe launched gradual nationwide expansion. It took first-mover advantage in stepping up marketing in supermarkets/ecommerce platforms (accounting for 60%/20%) to avoid direct competition with sector leaders. Meanwhile, it started nationwide expansion with key accounts of mass-retail supermarkets and then moved to low-tier cities, offering high margins and support to channels. The Company continued to build a presence in Western China markets while its Eastern China markets entering the harvest period, alongside the rapid growth in Northern and Central China markets. Qianhe’s online channels have maintained high growth and will likely develop jointly with offline channels to enhance brand power and sales.　　Channel expansion will boost growth in the short term, and opportunities and challenges will coexist in the long run. Qianhe is still in the middle of sales channel expansion despite external disruptions, and its short-term growth headroom mainly depends on its channel expansion capabilities. We expect Qianhe"s revenue to reach Rmb3.5bn-4bn in 2025 at a four-year CAGR of 16%-20%. With the opportunities arising from zero-additive soy sauce, the uncertainty mainly lies in the entry of sector leaders, such as Haitian Flavoring and the decline in consumer flows of supermarkets. The Company is coping with the challenges through actively launching Rmb9.9 zero-additive soy sauce, refining supermarket channel management and promoting community group purchase, which has so far achieved good results. In the long run, opportunities and challenges will coexist with uncertainties along the development. We advised investors to continue to keep tabs on the Company"s progress in the expansion in low-tier cities, catering channel expansion and product innovation, etc.　　Potential risks: The development of zero-additive condiments missing expectations; sales channel expansion failing expectations; intensified sector competition; fluctuations in raw material prices; disappointing exploration of new categories; the resurgences of regional Covid flare-ups exceeding expectations; food safety issues.　　Investment recommendation: Dirven by the dual driver of the accelerated growth of zero-additive soy sauce and the expansion of sales channels, we expect Qianhe to achieve rapid growth in the short term. We forecast its 2022E-24E operating revenue to be Rmb2.27bn/2.66bn/3.09bn, and net profit to be Rmb280/360/460mn. With the comps valuations of 40x/32x/48x 2023E PE at the current prices for Haitian Flavoring (603288.SH), Jonjee Hi-Tech (600872.SH) and Hengshun Vinegar (600305.SH) (based on Wind consensus estimates) as references, and combined with the high growth of Qianhe (with attributable net profit (ANP) CAGR at 12.4%/11.5%/33.6% over 2021-2024E for the three comparable companies as a reference, we estimate Qianhe’s 2021-2024E CAGR at 27.1%), we believe that the Company has certain valuation premiums. Based on the absolute valuation method, we arrive at a value of Rmb19.5 per share for Qianhe. Combined both absolute valuation method and relative valuation method, we assign 53x 2023E PE to derive a target price of Rmb20 and initiate coverage with an “OVERWEIGHT” 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。

标签： zero-additive