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In the A-share market, the food and beverage industry has become a popular choice for investors due to its advantageous business model and growth potential. According to the statistics of the industry sector (Shenwan Level 1), as of December 28, 2023, the industry ranked first in the northbound capital holdings, with a market value of 254 billion yuan, surpassing other sectors such as power equipment and medicine and biology.
In the first quarter of 2024, the proportion of the food and beverage industry in the fund's investment increased by 0.49 percentage points quarter-on-quarter, from 13.65% to 14.14%, reflecting the market's continued confidence and investment preference in the food and beverage industry.
In the consumer sector, the food and beverage industry is crucial. In 2023, known as the "Year of Consumption Boost", with the help of many incentive policies, the total retail sales of consumer goods exceeded 47 trillion yuan, achieving a year-on-year growth of 7.2%, becoming a key engine for economic growth, and the food and beverage sector played a vital role in this process. However, judging from the performance of listed companies in the A-share industry, the food and beverage sector is still facing many challenges in the short term.
The overall trend is downward, and the market value of the sector has risen slightly
In 2023, the food and beverage sector has had ups and downs, and the overall trend is downward, and this volatile market dynamic continues into 2024.
According to Guosen Securities, since 2023, the share price performance of the food and beverage sector has lagged the CSI 300 index, although the soft drink sector has performed relatively strongly.
Specifically, from January 1, 2023 to May 10, 2024, the share price of the A-share food and beverage sector fell by 13.56% as a whole, lagging behind the CSI 300 Index by 8.26 percentage points.
Further broken down into sub-sectors, in the first quarter of 2024, the soft drinks, meat products, and liquor sectors all outperformed the average for the food and beverage industry. The soft drinks segment saw a particularly prominent share price increase, reaching 17.89%. Dairy, snacks, beer, other alcoholic beverages, health products, flavored fermented products, prepared foods and baked goods were lower than the overall performance of the food and beverage industry, showing weaker market trends.
Despite the overall flat performance of the food and beverage sector, from a market capitalization perspective, the price-to-earnings (PE) ratio for January-April 2024 is down 15.9% from the end of 2023, while the projected net profit growth for 2024 is 19.6%. The combination of these two factors has led to a slight recovery in the sector's market capitalization year-to-date, increasing by 0.6%. High-quality white horse stocks have shown a clear valuation advantage in the process.
In this process, some high-quality companies with stable performance, such as Haitian Flavor, Yili Shares, Shuanghui Development, etc., have shown good valuation advantages and ranked high in market capitalization.
The price-to-earnings ratios of companies such as Yili and Shuanghui Development remain below 20 times, indicating that the market is more cautious in valuing these companies. At the same time, the price-to-book ratio of Anjing Food, Angel Yeast, Fuling Mustard, Tomson Beijian and other companies is about 2 times, and the price-to-book ratio of Yili Shares, Shuanghui Development, Qiaqia Food, and Qianhe Flavor Industry is not more than 5 times.
The price-to-earnings ratio and price-to-book ratio are important financial indicators to measure the value of an investment, and a lower value usually means that investors can invest in these companies at a lower cost and may indicate that the company has greater growth potential in the future. For investors looking for long-term growth, these undervalued companies could be an investment opportunity to watch.
However, investment decisions should be based on comprehensive considerations, including the company's financial position, market trends, macroeconomic environment, etc., and investors still need to carefully weigh the risks and benefits when making their choices.
Revenue growth slowed and profit growth was strong
Kaiyuan Securities pointed out in the research report that in the current context of slow recovery, the slight increase in the market value of the food and beverage sector is mainly driven by performance growth.
From a performance perspective, the food and beverage industry has shown strong overall resilience. According to the statistics of Guosen Securities, the operating income of the food and beverage sector in 2023 will reach 1,034.2 billion yuan, a year-on-year increase of 8.1%, and the net profit will be 205.9 billion yuan, a significant increase of 17.7% year-on-year.
Although the growth rate of operating income has slowed down compared with the previous year, the growth rate of net profit has increased, and the profitability of this sector is actually increasing. By the first quarter of 2024, the year-on-year growth rates of operating income and net profit were 6.55% and 15.59%, respectively, and the growth momentum continued.
Although the reduction of costs and the optimization of expense control have improved the net profit margin of the industry, the recovery of the consumer market has not met expectations, the competition within the industry has become more intense, and the growth rate of downstream catering channels has slowed down, all of which have led to the failure of the sector's performance to recover significantly. Some leading enterprises have even shown signs of negative growth in revenue, and this trend is also reflected in the performance of individual stocks in the food and beverage industry.
In 2023, Yili will continue to be in a leading position in the industry by virtue of its scale advantage and market position, and its operating income will rank first in the industry. Shuanghui Development and Bright Dairy also performed strongly, constituting the top three in the industry.
An in-depth analysis of the performance of the top 10 companies shows that most of them have experienced negative revenue growth. Among these enterprises, Yili shares, Anjing Food, Yike Food, Angel Yeast, and New Dairy have maintained positive growth, but the growth rate has dropped significantly. At the same time, the revenue of Shuanghui Development, Bright Dairy, Haitian Flavor, Shanghai Meilin, and Longda Food suffered a decline.
In terms of profitability, according to the non-net profit index, Yili shares, Haitian Flavor Industry and Shuanghui Development ranked in the top three, with 10.026 billion yuan, 5.395 billion yuan and 4.732 billion yuan respectively.
From the perspective of growth rate, Yili shares, Tomson Beijian and Anjing Food performed well among the top ten enterprises, all of which achieved double-digit profit growth, especially Anjing Food, with a growth rate of 36.8%. However, the profitability of companies such as Haitian Flavor, Shuanghui Development, Qiaqia Food and Taoli Bread has declined. In these rankings, only two companies, Yili and Yasui Food, have achieved positive growth in revenue and net profit.
For listed companies in the food and beverage industry, the accurate grasp of innovation direction is the key to enhancing corporate value, which often requires continuous R&D investment. In 2023, Yili's investment in R&D expenses will rank first in the industry, followed by Haitian Flavor and Angel Yeast. This continuous R&D investment not only brings more growth opportunities for the company, but also helps to maintain and enhance the market competitiveness of the brand.
The investment focus is on the core of performance growth
When evaluating a company's return on investment, in addition to the conventional financial indicators, ROIC (return on invested capital) is a key indicator that should not be overlooked. ROIC shows the level of net profit generated by a company using its invested capital, including shareholder investments and the company's debt. In short, the higher the ROIC value, the more profit the company can make with its capital, and the more significant the return on investment.
In the food and beverage industry in 2023, the companies with outstanding ROIC performance are Zhongju High-tech, Yanjin Shop, and Baoli Food, which remain in the high range of more than 20%, and Ganyuan Food, Shuanghui Development, Haitian Flavor and other companies also perform well, with an ROIC of more than 16%.
Through the performance of these companies, it is not difficult to see that companies with high ROIC tend to have similar excellent characteristics. The performance is stable, and the investment in R&D is also relatively generous. In the new economic normal, such companies are particularly attractive for investment.
Looking forward to 2024, Kaiyuan Securities believes that the main line of the food and beverage industry is still consumption recovery. The pace and strength of the recovery are more related to the macro economy. According to the recovery path, market demand will continue to boost, and consumption power will also increase. From the perspective of valuation, the food and beverage sector has entered a reasonable investment layout stage after the early adjustment, and the valuation of some companies has fallen to the low point in recent years, and the investment focus should return to the core main line of performance growth.
Guosen Securities remains optimistic about mass consumer goods, believing that the leading enterprises of mass goods will continue to maintain the resilience of their operations, and their performance is expected to continue to improve with further improvement in demand in the future. With the recent increase in macro policy support, the demand side will further improve. (Produced by Thinking Finance)■