Signs of channel improvement
? Jonjee announced its key headline numbers for FY21. Total revenue dipped slightly by 0.14% yoy to Rmb5.1bn, and net profit dropped by 15% yoy to Rmb753m in FY21, better than our expectations, mainly due to a better property sales contribution and improved condiment sales qoq. The detailed results will be released on 30 Mar.
? Jonjee’s condiment sales in 4Q21 turned to positive yoy growth of 6.7%, driven mainly by volume growth, indicating the Company’s sales channels are gradually recovering.
? The Company announced price hikes of 3%–10% starting on 1 Jan 2022 for 70% of its condiment products to mitigate cost pressure in FY22F.
? Upgrade to Add with a new DCF-based TP of Rmb37.6, as the Company’s condiment business has shown signs of recovery.
Worst period for the condiment business over
In FY21, Jonjee’s condiment sales (Meiweixian) declined by 7% yoy to Rmb4.6bn, accounting for 90% of total revenue, and its related net profit dropped by 30% yoy to Rmb607m, mainly because the community group purchase platforms had a negative impact on the Company’s traditional KA channels, especially in 1H21. Because of higher raw material prices, the net profit margin of Jonjee’s condiment business declined by 4.2% pts yoy to 13.1% in FY21. As at the end of 3Q21, the company’s Qijiang Dongan ( ????) commercial and residential property project, plot D, had a total of 696 flats for sale, 385 of which were pre-sold; the remaining 311 flats and 3,500 sqm of commercial property have yet to be sold. We estimate that the project contributed Rmb300m–400m in revenue in FY21. Owing to the current weak property market in China, we expect the sales contribution from its property business for FY22F to be only about Rmb200m. Now we expect the Company’s total revenue to grow by 0.8% yoy in FY22F and net profit to increase by 0.6% yoy, with sales of the condiment business rising by 7.8% yoy and related net profit up by 15.2% yoy in FY22F, driven mainly by a selling price increase and distribution channel recovery.
Signs of channel improvement in 4Q21
Jonjee started to collaborate with community group purchase platforms in Aug 21, and we believe it is on the right path. Its KA distribution channel is also on a recovery trend now. The Company’s condiment sales turned to positive yoy growth of 6.7% in 4Q21, after a severe yoy decline of 27% yoy in 2Q21 and 15% yoy in 3Q21. Management said sales growth in 4Q21 was driven mainly by volume growth, as 1) 4Q is usually the high season for condiment sales, and 2) its distributors placed advance orders in Dec to prepare for the upcoming peak CNY season. On 1 Jan, the Company increase its exfactory price by 3%–10% for 70% of its condiment products to mitigate raw material price increase pressure. We estimate that the Company’s channel inventory has been reduced to the normal level of 1.5–2 months now, from 3 months before Chinese New Year.
Continued short-term overhang from controlling shareholder
According to the latest announcement on 15 Jan 2022, about 85% of the equity interest in Jonjee of the controlling shareholder, ZS Runtian Investment, is still pledged owing to Runtian’s Rmb41bn debt to financial institutions. Also, the Company’s divestment of its property business for a non-public share placement with its controlling shareholder has faced some obstacles, as the parent company of Runtian Investment, Baoneng Group, currently has liquidity issues with its property business. Although it has not affected Jonjee’s daily operations, we think if Baoneng reduces its stake in Jonjee in the future, it
might benefit the fundraising process for Jonjee’s capacity expansion project.