Tianfeng: Seasoning fermentation products achieve steady growth in performance, incentive plan shows confidence, and cost reduction releases potential.

Tianfeng released a research report stating that the income of seasoning fermentation products is stable and growing, with significantly improved profits, and profit growth rate higher than income growth rate. In Q2 2024, the sales expenses of major seasoning enterprises increased, reflecting increased industry competition. The number of distributors has increased, but the average quality of distributors has decreased. Several companies have launched stock incentive plans, distributed mid-year dividends, and boosted market sentiment. Looking ahead to the second half of the year, Tianfeng believes that demand may remain stable, and with the trend of decreasing costs, profit elasticity may be released. It is recommended to focus on companies with stable performance growth and those benefiting from income reform dividends. Income stable growth, significant profit improvement, profit growth rate higher than income growth rate Performance: Income is steadily growing, and profit growth rate is higher than income growth rate. In Q2 2024, the revenue and net profit attributable to the parent company were 15.895/2.535 billion yuan, with year-on-year growth rates of 4.70%/238.60%, an increase from +3.79/+310.95pct in Q2 2023; overall steady income growth, with increased income growth rate year-on-year; and higher year-on-year growth rate in net profit attributable to the parent company. Expenses: Expenses have increased, and industry competition has intensified. In Q2 2024, the sales expense ratio/management expense ratio/sales expense ratio of the seasoning industry were 8.66%/3.57%/-1.18%, with year-on-year changes of +1.27/-0.08/+0.46pct. In Q2 2024, major seasoning companies increased their sales expenses, reflecting intensified industry competition. Profitability: Disturbance from cost factors, profit margin improvement in Q2 2024. The gross profit margin and net profit margin of the seasoning industry in Q2 2024 were 32.51%/16.16%, with year-on-year changes of +1.09/+11.07pct. Mainly benefited from the decline in raw material costs, the gross profit margin of the seasoning industry in Q2 2024 has shown a significant increase. Cost reduction brings profit elasticity, distributor growth + incentive plans show confidence 1) The number of distributors has increased, but the average quality of distributors has decreased. Specifically, looking at year-on-year changes in the number of distributors, most seasoning companies in Q2 2024 saw an increase in the number of distributors; looking at the month-on-month changes, most seasoning companies saw an increase in the number of distributors (except Sichuan Teway Food Group/Qingdao Richen Food). Looking at the average distributor income, most seasoning companies in Q2 2024 saw a decrease; only Jiangsu Hengshun Vinegar-Industry/Angel Yeast Co.,Ltd./Lotus Holdings saw positive growth month-on-month. 2) Following the launch of stock incentive plans/employee shareholding plans by Jonjee Hi-Tech Industrial And Commercial Holding/Sichuan Teway Food Group in the first half of 2024, Foshan Haitian Flavouring and Food/Angel Yeast Co.,Ltd./Jiangsu Hengshun Vinegar-Industry/Lotus Holdings also successively launched incentive plans. Various companies in the industry have introduced incentive plans, showing confidence in performance growth, greatly inspiring employees and motivating them. 3) Some seasoning companies distributed mid-year dividends, boosting market sentiment. 4) In the first half of 2024, the total national social retail sales increased by 3.7% year-on-year; the cumulative income of national catering services increased by 7.9% year-on-year. Both social retail and catering services are in a growth channel, and Tianfeng believes that the growth trend may continue, but the growth rate may be more stable. Overall, raw material prices in 2024 are expected to decrease compared to 2023, and profit elasticity is expected to be released. Investment recommendation: Overall, Q2 2024 performance showed steady growth, with a slowing growth rate, but profit elasticity continues to be released. Some seasoning companies in the middle of the year continued to launch stock incentive plans, boosting market confidence. Looking ahead to the second half of the year, Tianfeng believes that demand may remain stable, and with the trend of cost reduction, profit elasticity may be released. Tianfeng recommends focusing on 2 main lines: 1) Companies with strong performance stability: Foshan Haitian Flavouring and Food (603288.SH), Angel Yeast Co.,Ltd. (600298.SH); 2) Companies benefiting from income reform dividends: Jonjee Hi-Tech Industrial And Commercial Holding (600872.SH), Chongqing Fuling Zhacai Group (002507.SZ). Risk warning: Risks of declining industry prosperity; risks of fluctuating raw material prices; risks of intensified industry competition; market risks; food safety risks, etc.