Futubull finance has learnt that Soochow Securities has released a research report that the main investment strategy for food and beverage in 2024 is undervalued, high-quality, certain growth and high dividend yield, with operation improvement as a secondary line. With the continuous increase of stable policies and changes in risk preference, actively reforming and operation-improving companies deserve more attention, especially Qiaqia food co., ltd. (300783.SZ). Baijiu companies mainly layout in the off-season and recommend Luzhou Laojiao (000568.SZ) etc. It is recommended to pay attention to: Zhenjiu Lidu (06979) etc. Bullish on cost-dividend beer and some snack condiments under common brands, such as Beijing Yanjing Brewery Co., Ltd (000729.SZ). It is recommended to pay attention to: Xiangpiaopiao Food Co., Ltd. (603711.SH). It is recommended for higher dividend yields: Yihai International Holding Ltd. (01579) etc.

The main viewpoints of Soochow Securities are as follows:

This week's theme is to take the Japanese dairy industry as an example, briefly look forward to the domestic dairy product consumption space and the direction of incremental development of dairy enterprises.

Yogurt and cheese are the main directions for the structural upgrading of the Japanese dairy industry, with the high value-added track pattern concentrated.

(1) Slow growth in per capita consumption: The Japanese dairy industry started in the 1960s. Driven by policy, per capita annual consumption of liquid and solid dairy products increased from 10.7/10.5kg in 1960 to 35.2/35kg in 1985. Since 1986, the per capita consumption of solid dairy products has exceeded that of liquid dairy products. The per capita consumption of dairy products in Japan peaked around 2000 and has since stabilized at around 90kg. (2) High market size stability: In 2023, the market size of Japan's dairy products reached 2,303.13 billion yen (about 106.1 billion yuan), up 4.5% year-on-year. The compound annual growth rate of the market size from 2009 to 2023 was 1.1%, of which the compound annual growth rates of quantity and price were -1.13%/2.3%, and the increase in price was the main driving force for the stable market size. The increase of value-added dairy products such as yogurt and cheese contributed to the growth of price. (3) High concentration of high value-added categories: 95% of fresh milk in Japan is controlled by designated producer teams downstream dairy enterprises have lower discourse power. The concentration of liquid milk and basic products is lower than that in China, but the concentration of high-value-added dairy products such as yogurt and cheese is relatively high. In 2023, CR4 of Japanese cheese and yogurt were 61.8%/62.6%, of which the market share of the cheese leader Snow Brand and the yogurt leader Yakult reached 26.2%/22.5%, respectively.

The performance of Japanese dairy enterprises: continuous upgrade of functional products + internal cost reduction and efficiency improvement, and the century-old Meiji is always new.

Meiji group was founded in 1916. It started in the sugar industry and now covers pharmaceuticals, yogurt & cheese, health products, chocolate candies, and drinking milk. By 2022, Meiji infant formula, yogurt, and chocolate, among other businesses, have leading market shares in Japan. Innovation and R&D are the core of Meiji's success. Meiji's operating margin and net margin have increased from 3%/1% in 2009 to 8%/5% in 2023, thanks to product structure upgrading and internal cost reduction and efficiency improvement.

The upgrade of the consumption structure of China's dairy industry has broad space, and the potential for innovation and profit improvement of dairy enterprises can be expected.

(1) Industry: In 2022, China's per capita consumption of liquid milk is 18.3 kg, which is still significantly lower than Japan's 32.8 kg. From the perspective of consumption structure, China's dairy product consumption structure is relatively primary, with a much lower proportion of high value-added products such as yogurt and cheese than Japan. The proportion of room temperature milk in liquid milk is much higher than that in Japan, and there is still great potential for the development of categories such as yogurt, cheese, and fresh milk in the future as Chinese consumers' awareness and spending power increase. (2) Regional dairy enterprises: By 2023, the CR2 of China's yogurt market is 55.4%, and regional dairy companies such as New Hope Dairy are focusing on marketing and developing new products from diversified taste products, new consumption scenarios, etc., and gradually increasing their market share from 2014 to 2023. The pattern of low-temperature fresh milk market is scattered, and regional dairy companies compete with each other. Bright Dairy started with fresh milk in the East China region and has a strong brand power. The leading low-temperature fresh milk in the northwest region is New Hope Dairy, and the leading company in the north China region is Sanyuan. In the future, regional dairy companies are expected to continue to benefit from the expansion of the low-temperature fresh milk market. (3) The innovation potential of leading dairy companies is huge: Although the Japanese company Meiji has diversified successfully, its innovation in the dairy industry is very sustained and leading. We believe that the diversification of leading Chinese dairy companies has potential, and non-dairy product business has room for extension. There is room for innovation and high value-added product development, and it is expected to continue to increase the proportion of high-end products such as cheese in the field of dairy products. In terms of profitability, considering that the current gross margin and net margin of Yili are close to those of Meiji Holdings, but taking into account the lower raw material prices and greater room for product structure upgrading in China, the leading dairy companies still have room for profit improvement under the compression of cost rate.

Sector core views:

The main investment strategy for food and beverage in 2024 is low-valued, high-quality, deterministic growth with high dividend yields. The secondary strategy is operational improvement. With the continuous increase of stable policies and changes in risk preferences, actively reforming and operating-improving companies deserve greater attention, especially those that have been preliminarily validated by data, such as Three Squirrels. For the off-season of baijiu, the focus is on Luzhou Laojiao, Shanxi Xinghuacun Fen Wine Factory, Anhui Gujing Distillery, Jiangsu King's Luck Brewery Joint-stock, Anhui Yingjia Distillery, and Hebei Hengshui Laobaigan Liquor, and it is suggested to pay attention to Zhenjiu Lidu and Xinjiang Yilite Industry. Mass-market beer and some snack condiments are bullish on cost dividends, such as Beijing Yanjing Brewery, Tsingtao Brewery, Chongqing Brewery, Three Squirrels, Yanker Shop Food, Jinzai Food Group, Qianhe Condiment and Food, Anjoy Foods Group, and Jonjee Hi-tech Industrial and Commercial Holding. It is suggested to pay attention to Xiangpiaopiao Food. Recommended high dividend yield stocks include Yihai International, Haidilao, Hebei Yangyuan Zhihui Beverage, and Chengde Lolo.

Risk warning:

Expected fluctuations in raw material costs, increased industry competition risks, and food safety issues.