Red Star Capital Bureau noted that behind the drastic stock price drop, on one hand, there’s the company’s declining revenue and net profit, and on the other, there’s the brand damage caused by negative public opinions from incidents like the “Double Standard” scandal. The challenges facing Haday (Haitian) today are clear.
In less than three years, the once reigning “Soy Sauce King” now seems to be fading.
As of October 20, 2023, Haday (603288.SH) closed at 35.09 yuan/share, with a total market capitalization of 1,951.21 billion yuan. Compared to the peak of 124.68 yuan/share at the beginning of 2021, its market value has evaporated by more than 500 billion yuan.
Under pressure, can the “Soy Sauce Giant” find its way out?
- First drop in revenue and net profit
Haday is one of the first batch of “Time-honored Chinese Brands” announced by the Ministry of Commerce. It was successfully established in 1955 through public-private partnerships.
According to the company’s official website, Haday currently produces products that include soy sauce, oyster sauce, vinegar, cooking wine, seasoning sauce, chicken essence, chicken powder, fermented bean curd, hot pot base, and more – totaling over 800 specifications in hundreds of varieties.
Looking at the recent financial data, Haday’s performance in the first half of this year was poor.
Financial statements show that in the first half of the year, Haday achieved a revenue of 129.7 billion yuan, a year-on-year growth rate of -4.19%. The net profit was 30.96 billion yuan, a year-on-year growth rate of -8.76%. This is the first time since its listing that Haday’s semi-annual report has shown a decline in both revenue and net profit.
From a gross margin perspective, Haday’s gross margin in the first half of this year was 35.91%, also a decade-low level.
In terms of revenue structure, Haday’s income mainly comes from soy sauce, seasoning sauce, oyster sauce, and others. Soy sauce, seasoning sauce, and oyster sauce alone account for over 80% of the total revenue, being the company’s three pillars.
In the first half of this year, all three pillars showed a decline. The financial report shows that the income from soy sauce products was 67.98 billion yuan, a decrease of 9.28% from the same period last year. Seasoning sauce revenue was 13.37 billion yuan, down by 5.96%. The oyster sauce business achieved a revenue of 21.97 billion yuan, down by 0.53%.
Regarding this, the secretary of Haday’s board of directors stated that the company’s performance was affected by various factors. On one hand, the market environment and consumer demand are still changing rapidly, and it will take some time to return to a stable state. On the other hand, the company has been focusing on adjusting distributor inventory levels to ensure the overall healthy development of the market.
However, the Red Star Capital Bureau observed that perhaps the signs of Haday’s performance decline had been evident for some time.
If we stretch the timeline, we can see that starting from 2021, Haday’s growth and profitability have been under significant pressure.
Financial statements show that in 2021 and 2022, Haday achieved revenues of 250.0 billion yuan and 256.1 billion yuan respectively. The year-on-year growth rates were 9.7% and 2.4%. Revenue growth has slowed significantly, marking the first time since its listing that Haday’s revenue growth has dropped to single digits.
Furthermore, the company’s profitability has also started to decline. Financial reports show that in 2021 and 2022, the company’s net profits were 66.7 billion yuan and 62.0 billion yuan, with year-on-year growth rates of 4.2% and -7.1%. In 2022, the company’s net profit began to show negative growth.
In summary, the pressure on Haday’s business has become evident. With sluggish business growth and a sharp decline in profitability, the market might naturally be concerned about the company’s future growth potential.
- Why did performance decline?
Haday’s current predicament stems from a combination of factors. On one hand, poor sales have led to a decline in revenue. On the other, rising costs have resulted in reduced gross profit margins, impacting the company’s profitability.
Specifically, the pressure on the revenue side mainly comes from changes in the market structure and intensified industry competition.
In recent years, with the rise of live-stream shopping and community group buying, traditional offline channels have been greatly affected. However, Haday mainly relies on offline channels.
Financial reports show that in the first half of this year, offline channels accounted for 96.12% of Haday’s business income, while online channels accounted for only 3.88%.
In addition, it’s worth noting that the number of Haday’s distributors also decreased in the first half of this year. The financial report shows that there were 6,756 distributors in the first half of the year, a net decrease of 416. This reduction in distributor data has also impacted the company’s performance to some extent.
In contrast, a competitor, Qianhe Flavor Industry (603027.SH), began focusing on online channels much earlier.
Their financial reports show that from 2018 to 2022, the proportion of online revenue for Qianhe Flavor Industry was 6.94%, 9.11%, 15.35%, 19.94%, and 25.87%, respectively. Clearly, Qianhe’s online revenue proportion far exceeds that of Haday.
Furthermore, on the cost side, the increase in raw material costs is continuously squeezing the company’s profit levels.
Haday’s direct raw materials are the primary cost, including ingredients for soy sauce like soybeans, soybean meal, wheat, bran, and flour.
Taking the price of wheat as an example, public data shows that the average domestic price of wheat in 2022 exceeded 3,300 yuan/ton, a three-year high. Although the price of wheat has fallen this year, it is still relatively high compared to previous years.
Affected by the price of raw materials, Haday’s gross profit margin has been on a declining trend in recent years.
Financial reports show that in the first half of 2023, Haday’s gross margin was 35.91%, a slight increase from 2022. However, the company’s sales gross margin in 2022 hit its lowest level since 2012.
For Haday, under the pressure of increasing costs, enhancing profitability might have to be achieved through price hikes. However, as Haday is positioned for the mass market, the company might find it challenging to change its brand positioning or to get consumers to accept mid-to-high-end products or direct price increases.
In summary, intensified market competition, reliance on a single channel, and rising costs are all posing significant challenges to Haday. In this predicament, Haday has no choice but to change.
- Efforts towards diversified layout
Facing various difficulties in its core business, Haday has begun to transition towards diversification.
For example, in 2020, Haday ventured into the compound seasoning for hot pots and launched the “Hotpot @ME” base. For marketing, Haday sponsored the variety show “Roast” season five to promote the “Hotpot @ME” product.
In January 2021, Haday introduced a new edible oil brand called “Oil Commander”, marking its entry into the edible oil industry.
In addition, Haday has experimented with grains, fermented fruit and vegetable juices like carrot juice, and ready-made food products. Even in July of this year, Haday launched an ice cream product with a soy sauce barrel design, emphasizing its “umami” flavor.
For Haday, the brand influence, scale effect, and channel advantages it possesses are strengths. Thus, exploring diversification is a necessary path for development.
However, Haday’s diversified layout is not yet deemed successful.
In the first half of 2023, within Haday’s revenue structure, other businesses representing diversification contributed only 14.52% to the revenue.
In fact, the segments Haday has ventured into already have established leaders. For instance, in the hot pot base segment, there are brands like Haidilao and Tianwei Food; in the edible oil segment, there are Jinlongyu and Fulinmen; the beverage industry is highly competitive. Hence, it’s challenging for Haday to capture a significant market share in these segments.
Overall, Haday’s diversified products have been performing moderately. Even this year’s “soy sauce ice cream” marketing gimmick didn’t generate much attention in the market.
Moreover, while expanding into new businesses is crucial, in the face of fierce market competition, Haday’s exploration of new businesses requires continuous investment. Whether this might adversely impact the company’s current development remains a concern for the market.
Conclusion
Under the influence of internal and external factors, the once “Soy Sauce King” is clearly under pressure.
Ultimately, the urgent matter for Haday is how to maintain its core business while exploring new market spaces.