Tianfeng: The revenue of the food and beverage industry in Q3 increased compared to the previous quarter, and profit elasticity may be released.

Tianfeng released a research report stating that overall, the performance of the food and beverage industry in Q3 of 2024 was steadily growing, with a faster growth rate compared to the previous quarter, and profit elasticity continued to increase. Looking ahead for the full year, the bank believes that demand may remain stable, mass consumption continues to recover, and with the trend of decreasing costs, profit elasticity may be further released. The bank recommended focusing on three main themes: 1) companies with strong performance stability such as Foshan Haitian Flavouring and Food (603288.SH) and Angel Yeast Co., Ltd. (600298.SH); 2) companies that may benefit from reform dividends such as Chongqing Fuling Zhacai Group (002507.SZ); 3) companies that may benefit from the trend of consumption upgrades such as Sichuan Teway Food Group (603317.SH). Key points from Tianfeng: - Income in Q3 continued to grow steadily, with profit growth outpacing revenue growth. - Performance: In Q3, revenue growth accelerated, and profit growth outpaced revenue growth. The condiment industry's revenue and net profit attributable to the parent company in Q3 of 2024 were 16.415 billion and 2.578 billion respectively, representing a year-on-year increase of 9.55% and 15.25% respectively, higher than +3.34/+9.44 percentage points compared to Q3 of 2023. The revenue growth rate in Q3 of 2024 increased by 4.85% compared to the previous quarter. - Expenses: Costs were reduced in Q3 of 2024, and the competitive situation has somewhat converged. The sales expense ratio/management expense ratio/financial expense ratio of the condiment industry in Q3 of 2024 were 7.77%, 3.55%, and -0.40% respectively, with changes of -0.15%, -0.23%, and +0.47% compared to the previous year. The sales expense ratio decreased both year-on-year and quarter-on-quarter in Q3 of 2024, indicating that major condiment companies may have reduced sales expenses and the competitive situation may have converged. - Profitability: The logic of cost reduction continued to evolve, and profit margins increased in Q3 of 2024. The gross profit margin and net profit margin of the condiment industry in Q3 of 2024 were 33.06% and 15.92%, representing an increase of +1.30 and +0.85 percentage points year-on-year. With the continued decrease in prices of raw materials such as soybeans, edible oil, and white sugar, the gross profit margin of the condiment industry in Q3 of 2024 maintained an upward trend. Cost reduction brings profit elasticity, focus on the health and consumption upgrade tracks - Demand: The catering industry is still growing, although the growth rate slowed down compared to Q2 of 2024, and weak growth in consumption demand (decreasing customer prices) still exists. Especially, the growth rate of mass catering is significantly faster than high-end catering, indicating that industry competition still persists. With the backdrop of the recovery in mass consumption, there are still structural opportunities. - Costs: Looking ahead for the full year, raw material prices are expected to decrease overall compared to 2023, allowing profit elasticity to be released. Industry characteristics: 1) Diversified purchasing channels, with online channels growing rapidly, and major condiment companies showing faster growth rates online than offline, with increasingly comprehensive layouts. 2) Delicious flavors are still in high demand, with a gradual shift towards healthy demands. 3) Convenience and deliciousness resonate together, and the trend of consumption upgrades/comfort food sauces is emerging. Investment recommendation: Overall, the performance of the food and beverage industry in Q3 of 2024 has shown stable growth, with a faster growth rate compared to previous quarters, and profit elasticity continues to increase. Looking ahead for the full year, the bank believes that demand may remain stable, mass consumption continues to recover, and with the trend of decreasing costs, profit elasticity may be further released. The bank recommended focusing on three main themes: 1) companies with strong performance stability such as Foshan Haitian Flavouring and Food and Angel Yeast Co., Ltd.; 2) companies that may benefit from reform dividends such as Chongqing Fuling Zhacai Group; 3) companies that may benefit from the trend of consumption upgrades such as Sichuan Teway Food Group. Risk warning: Risks of declining industry prosperity; risks of fluctuating raw material prices; risks of intensified industry competition; market risks; food safety risks, etc.