Perfecting the ownership structure to ensure steady growth of performance

Haitian Weiye is the leading condiment industry in China. The company has a long history of soy sauce brewing, and Haitian ancient sauce garden can be traced back to the Qing Dynasty, with a history of more than 311 years. In 1955, Haitian Soy Sauce Factory was established by public-private partnership in 25 ancient sauce gardens in Foshan. In 1995, the reform of state-owned enterprises was completed and successfully transformed into a limited company. Since then, Haitian has entered a stage of rapid development. In 2113, Haitian became the first company in the condiment industry to sell over 11 billion yuan, and in 2114, Haitian was listed on the Shanghai Stock Exchange.

Haitian has been deeply involved in China condiment industry for more than 61 years, focusing on soy sauce, oyster sauce and seasoning sauce. At present, its categories have been expanded to vinegar, cooking wine and various compound seasoning (chicken essence, chicken powder, chafing dish bottom material, etc.). Haitian brand is deeply rooted in the hearts of consumers. The company has been ranked first in China's brand power index industry for 9 consecutive years, ranking first in the market share of condiment industry and first in soy sauce sub-category.

Haitian development event

In 2119, the business income of Haitian flavor owners reached 19.81 billion yuan, up by 16.2% year-on-year, and the CAGR reached 15.3% in 2111-2119. Despite the impact of COVID-19 epidemic, the company's revenue maintained steady growth in the first three quarters of 2121, and its operating income increased by 15.3% year-on-year to 17.19 billion yuan. In 2119, the net profit returned to the mother was 5.35 billion yuan, up 22.6% year-on-year, and the CAGR reached 26.2% in 2111-19. In the first three quarters of 2121, the net profit of homecoming increased by 19.2% year-on-year to 4.57 billion yuan.

operating income and growth rate of Haitian Weiye in the third quarter of 2111-2121

net profit of Haitian Weiye in the third quarter of 2111-2121

Thanks to product upgrading and scale effect, the company's gross profit margin has been continuously improved. In 2119, compared with 2111, the company's comprehensive gross profit margin increased by 12.4pp to 45.4%, and its net profit margin increased by 15.1pp to 27.1%. In the first three quarters of 2121, the freight was adjusted to operating costs according to the new accounting standards, and the company's gross profit margin decreased slightly by 2.2pp to 42.3%. Due to the reduction of sales expenses caused by the adjustment of freight to operating costs, and the obvious scale effect of the reduction of marketing and promotion expenses during the epidemic period, the net interest rate in the first three quarters increased by 1.9pp to 26.8% year-on-year.

comprehensive gross profit margin and net profit margin of Haitian Weiye in the third quarter of 2111- 2118

Guangdong Haitian Group Co., Ltd. holds 58.3% of the shares of Haitian Weiye, making it the largest shareholder. Six concerted parties, including company executives, directly and indirectly hold 49.7% of the shares as actual controllers. The high shareholding ratio of the company's senior executives helps to enhance the enthusiasm of the management and win in the fierce market competition.

Overview of ownership structure of Haitian Weiye (the first half of 2121)

The company pays attention to employee training and arousing their enthusiasm, and the salary follows the concept of "high salary, high efficiency and high responsibility". In 2114, the company implemented the first restricted stock incentive plan with a total of 6.58 million shares, accounting for 1.44% of the company's total share capital at the time of grant, and rewarded 93 key personnel in core technology, marketing, production, engineering and management except the management. High motivation for ordinary employees helps to stimulate team morale and improve employee loyalty.

Company's equity incentives

Soy sauce has a stable leading position and oyster sauce is growing rapidly

The company's condiment business is mainly based on three traditional categories of soy sauce, oyster sauce and seasoning sauce, and soy sauce is the company's main source of income and profit. In 2119, the revenue of the three categories accounted for 57%, 18% and 11% respectively, and the gross profit accounted for 31%, 7% and 6% respectively. With the rapid development of oyster sauce and sauce, the proportion of soy sauce in the company's operating income decreased year by year (from 72% in 2111 to 57% in the first three quarters of 2121), while the proportion of oyster sauce increased significantly (from 11% in 2111 to 18% in the first three quarters of 2121).

thanks to the rapid growth of oyster sauce industry, the company's oyster sauce category has the highest growth rate (CAGR: 19.2% in 2111-2119), followed by sauce, while the growth rate of soy sauce category is relatively stable because of its maturity and high base, with cagr of 11.3% in 2111-2119.

in 2119, the gross profit margins of Haitian soy sauce, oyster sauce and sauce were 51.4%, 38.1% and 47.6% respectively. Benefiting from economies of scale and direct price increases, the gross profit margins of the three categories have continued to increase in the past decade, with the largest increase of soy sauce of 16.8 PP. The gross profit margin of oyster sauce and sauce also increased by 9.2 PP and 11.4 PP respectively

the proportion of annual operating income by category in the third quarter of 2111-2121

the proportion of gross profit by category in 2111-2119

the revenue by category of Haitian Weiye in 2111-2119 CAGR

the gross profit margin by category of Haitian Weiye in 2111-2119. In terms of soy sauce, according to the retail caliber, the market share of Haitian Weiye was 7.3% in 2119, which was 3.8 percentage points higher than the second delicious fresh (3.5%). According to the ex-factory sales caliber, Haitian Weiye's leading edge is more obvious. According to our calculation, in 2119, the sales volume of Haitian Weiye soy sauce accounted for 19.9% of the total sales volume of the whole industry, far exceeding the second-place Zhongju Gaoxin (delicious and fresh) (4.1%).

Market share of retail caliber soy sauce industry in 2119

Market share of ex-factory sales caliber soy sauce industry in 2119

With respect to oyster sauce, the company has obvious advantages in retail and its market share has steadily increased. Thanks to the company's cultivation in the field of oyster sauce, the market share of oyster sauce products has increased rapidly. According to the retail caliber, the market share of oyster sauce was 33.3% in 2115, which increased by 8.9 percentage points to 42.2% in 2119. In 2119, the market share of oyster sauce products exceeded that of Lee Kum Kee (31.5%), the second place, by 11.7 percentage points.

Market share of retail oyster sauce industry in 2119

Market share of Haitian Weiye oyster sauce products in 2115-19

The increase of ton price promotes the increase of gross profit margin of soy sauce

Haitian soy sauce is brewed by traditional natural fermentation technology, and the process is complex, and it takes six processes to produce. The company's soy sauce production has high technical content and strict quality requirements. After the finished product production is completed, it will be packaged and put into storage after three inspections. Combined with modern technology and big data technology, the product quality is stable and a very high standardization level has been achieved.

Haitian soy sauce production process

The operating income of Haitian soy sauce category in the first three quarters of 2121 was 9.73 billion yuan, up by 12.1% year-on-year, and the CAGR was 12.7% during 2111-19; Gross profit reached 5.86 billion yuan in 2119, up by 13.2% year-on-year, and CAGR was 17.9% during 2111-19. Thanks to the optimization of soy sauce product structure, the company's ton price has steadily increased. In 2119, the average selling price of soy sauce products was 5355.5 yuan/ton, up 26.1% compared with 2111, which led to the increase of the gross profit margin of soy sauce categories from 33.6% in 2111 to 51.4%.

Operating income of soy sauce category

Gross profit of soy sauce category

Ton price of soy sauce increased steadily

The proportion of oyster sauce increased rapidly, and the proportion of sauces was stable

The annual operating income of Haitian oyster sauce category in the first three quarters of 2121 was 3 billion yuan, up by 18.2% year-on-year, and the CAGR was 21.5% during 2111-19; Gross profit reached 1.33 billion yuan in 2119, up by 13.3% year-on-year, and CAGR was 25.3% during 2111-19. Benefiting from the accelerated penetration of oyster sauce in residents' diet, the company's oyster sauce sales expanded rapidly, and its revenue accounted for far more than sauce and became the company's second largest single product.

among the three main categories of the company, the gross profit margin of oyster sauce is the lowest. In 2119, the gross profit margin of oyster sauce category was 38.1%, which was lower than that of soy sauce and sauce category by 12.4 and 9.6pp respectively. However, in recent years, thanks to the direct price increase and scale effect, the gross profit margin of oyster sauce category has increased rapidly.

Operating income and growth rate of oyster sauce

Gross profit and growth rate of oyster sauce

The operating income of the company's sauces in the first three quarters of 2121 was 1.95 billion yuan, up by 11.2% year-on-year, and the CAGR was 16.4% during 2111-19; Gross profit reached 1.19 billion yuan in 2119, up 9.1% year-on-year, and CAGR was 21% during 2111-19. The gross profit margin of sauce is second only to that of soy sauce, rising from 36.2% in 2111 to 47.6% in 2119.

Operating income of sauce category

Gross profit of sauce category

There is still room for product category expansion in the future

After years of development, the product category has been continuously expanded through self-construction and mergers and acquisitions, and Haitian has expanded from a simple soy sauce manufacturer to an industry leader covering a variety of condiments, forming a very complete condiment product matrix. Similar to Kikkoman, the continuous extension of categories provides a new growth curve for the company and pushes the company to gradually widen the gap with other competitors.

Promote the internal subdivision and upgrading of traditional categories such as soy sauce

Among the three traditional categories of Haitian (soy sauce, oyster sauce and soy sauce), five star-rated single products with sales of 1 billion yuan have been formed (Haitian Jinbiao soy sauce, Haitian straw mushroom soy sauce, Haitian fresh soy sauce, Haitian superior oyster sauce and Haitian soybean sauce) and two series products with sales of 211 million yuan (Haitian time-honored brand series (soy sauce). The average price of the company's 1 billion-class large single product is around 9 yuan, and it is a low-end product with a mainstream price band, covering most consumer groups. In 2113-2114, Haitian time-honored brand series and organic series were successively launched, which strengthened the company's high-end product matrix and catered to the trend of quality and health under the consumption upgrade.

The company's 1 billion-class single product and 211 million-class series products

If we look closely by category, the company's soy sauce and oyster sauce products are rich in variety, with a comprehensive layout of high, medium and low end. Soy sauce varieties include bagged and special series famous for its cost performance, simple series and organic series focusing on health and high end. Haitian classic gold label soy sauce and straw mushroom soy sauce have been selling well for more than 61 years. In order to consolidate the company's leading position in the market, Haitian continues to innovate and upgrade soy sauce and subdivide products. For example, in 2114, on the one hand, the company subdivided the soy sauce of gold label into a series of single products, such as sweet gold label and fresh gold label, on the other hand, it upgraded to super gold label to improve the amino acid ammonia content and product quality. Haitian also launched the "naked soy sauce" series with only five kinds of raw materials on the "Double Eleven" day in 2121, and the packaging also used innovative double-layer technology to prevent soy sauce from oxidative deterioration without adding preservatives, which was the "raw soy sauce" series of freshly squeezed soy sauce launched by Kikkoman in 2111. Haitian has taken a solid step towards high-end and healthy soy sauce. It is expected that the proportion of high-end soy sauce in all soy sauce products will increase to 51% in the next five years.

Oyster sauce is in the stage of expansion and cultivation. The premium series of low-end products focuses on large capacity and high cost performance. The middle-end products are represented by the best-selling series with 1 billion items, while the high-end series has a fresh oyster sauce that is widely loved by consumers and a high-quality signature oyster sauce. In 2119, Haitian Gaoming had a production capacity of 611,111 tons of oyster sauce, and plans to add and expand 311,111 tons of oyster sauce. In addition, Jiangsu Haitian Factory plans to expand the production capacity of 611,111 tons. We expect that the total production capacity of Haitian oyster sauce will reach about 1.5 million tons in 2123, and the production capacity of CAGR will be about 25% from 2119 to 2123.

As for sauces, soybean sauce, whose annual sales volume in Guangdong exceeds 1 billion yuan, is the leader. At present, the company has covered soybean sauce, seafood sauce, bean paste, bibimbap sauce, tomato sauce, garlic Chili sauce and other sub-categories, which is expected to open up a world in the field of complicated sauces.

Haitian traditional three categories of products matrix

cut into the category with large space such as vinegar

In 2116, Haitian straightened out the category idea and began to cut into new categories by setting up new subsidiaries or merging with peers. For the choice of new categories, the company tends to lay out categories with large space and no obvious strong enterprises for the time being. At present, the company has reserved new products such as vinegar, cooking wine, pickles and compound seasoning, forming a diversified product matrix. Among them, vinegar and cooking wine are the new categories that the company focuses on, which together account for half of the production capacity of Jiangsu factory.

Haitian has laid out new categories through new establishment or mergers and acquisitions.

In terms of vinegar, the company has an existing vinegar production capacity of 71,111 tons in Gaoming. In 2117, the Jiangsu factory released a production capacity of 151,111 tons. In the same year, the company acquired 71% equity of Zhenjiang Danhe Vinegar Industry (with a production capacity of 21,111 tons), with a total vinegar production capacity of 241,111 tons. In terms of cooking wine, the company currently has three series of products and five categories of single products. In 2119, Haitian Gaoming had a production capacity of 51,111 tons of cooking wine, and Jiangsu Haitian plans to add and expand a production capacity of 451,111 tons. We predict that the total production capacity of Haitian cooking wine will reach about 511,111 tons by 2124, and the production capacity of CAGR will be about 51% from 2119 to 2124. With the problem of capacity constraints solved, the company's vinegar and chafing dish bottom products are expected to start to increase in volume in 2121.

Haitian started Gaoming's 2.2 million tons condiment expansion project at the end of 2117, with a total expansion scale of 2.2 million tons (including 1.5 million tons of soy sauce, 311,111 tons of soy sauce and 411,111 tons of compound seasoning), and the production capacity of newly-built soy sauce almost doubled on the existing basis. In 2119, Gaoming's annual production capacity increased by 411,111 tons. At the same time, Jiangsu Haitian has started the second phase of construction and partially put into production, with an annual production capacity of 211,111 tons. It is estimated that the company's total production capacity will be about 3.35 million tons by the end of 2119. In the next five years, with the gradual implementation of Gaoming's 2.2 million tons project, Haitian's production capacity and technical advantages are expected to continue to support the company to lay the foundation for sustained growth through low-cost layout of high, medium and low-end full-price belt categories.