Company Profile

Shandong Delisi Food Co., Ltd. is a China-based company principally engaged in the production, processing and sales of meat products. The Company's main products include low-temperature meat products, cooked-meat products, fermented meat products and other meat products, egg products, instant noodle and rice products, frozen meat products and other frozen food, beverages, seasonings and animal by-products. The Company is also engaged in the heating and power supply businesses. (Source: MarketScreener)

Event

Delisi Food (“the company”) released its 2022 annual report.

The company reported CNY3.075 billion, CNY32 million and CNY12 million in revenue, net profit attributable to shareholders, and net profit attributable to shareholders and excluding gains and losses from non-recurring items in 2022, respectively, a year-on-year change of -1.76%, -27.67%, and -68.51%.

For the fourth quarter 2022, the revenue and net profit attributable to shareholders was 1.117 billion yuan and -19 million yuan, respectively, a year-on-year change of 202.25% and -803.55%, and the 4Q22 net profit attributable to the shareholders was -6 million.

Comments

The company ramped up efforts in ready-made meal business and sped up its expansion outside its home province.

In 2022, the revenue from chilled and frozen meat was CNY1.599 billion, down 8.47% year-on-year. This was mainly due to the decline in the sales price of the company's fresh products as a result of the drop in hog prices in China compared with the previous year. And the revenue from the slaughtering business accounted for 52% of the company’s total revenue, making it a drag on the company’s overall revenue.

In 2022, the revenue from ready-made meal was CNY643 million, a year-on-year growth of 37.91%, accounting for 20.91% of the total revenue, up 6.02pps year-on-year to.

The company continued to optimize the mix of ready-made dishes, built marketing network, and advanced strategic cooperation with leading customers in the catering industry.

From a regional perspective, the proportion of the company's revenue from its home Shandong Province and northern China dropped in 2022, while the revenue from eastern China and northeastern China rose significantly, showing its faster expansion.

The company continued to promote its marketing network and distributor recruitment across the country, as the number of distributors reached 1,325 in 2022, a year-on-year growth of 19%.

The company’s profitability was dampened by rising costs and higher expense ratios.

In 2022, the gross profit margin was 6.92%, down 0.86pps year-on-year, of which the gross margin in 4Q22 was 2.94%, down 6.95pps year-on-year. The decline in gross profit margin was mainly due to the continuously rising and high prices of some major raw materials and energy, as well as the disruption of production by the epidemic in 4Q22.

In 2022, the sales/management/R&D/financial expense ratio was 2.98%/2.67%/0.34%/0.10%, a year-on-year change of +0.10pps/+0.78pps/+0.07pct/-0.38pps, respectively. The major fluctuation in the management expense ratio was mainly caused by the adjustment of personnel and salary structure and the growth in investment in Fendeli. In all, the company’s net profit margin attributable to shareholders in 2022 was 1.03%, down 0.37pps year-on-year.

Earnings forecast and investment recommendation

We revise our earnings forecast based on the company’s 2022 annual report and estimate the company’s revenue at CNY4.062 billion, CNY5.001 billion and CNY5.903 billion for 2023, 2024 and 2025, respectively, up 32.10%, 23.13% and 18.04% year-on-year.

We also estimate its net profit attributable to shareholders at CNY81 million, CNY128 million and CNY184 million for 2023, 2024 and 2025, respectively, a year-on-year growth of 156.09%, 57.52% and 44.47%, respectively.

The corresponding EPS is CNY0.13, CNY0.20 and CNY.29, respectively, implying a PE ratio of 51.48x, 32.68x and 22.62x, based on the closing price on April 18, 2023.

We maintain the rating of “Outperform”.

Potential risks

Fluctuations in pork prices; competition in the ready-made meal market; food safety risk.