With a single-day plunge of nearly 34%, the already "weak" stock price of shiyue daotian (09676) once again "collapsed under the unlocking wave".

On October 14, shiyue daotian plummeted rapidly, turning from red to green in the morning, quickly falling by over 20%, and then the stock continued to plummet significantly. At one point during the day, it fell over 35%. By the close, the stock price had plummeted by 33.91%, trading at 8.05 Hong Kong dollars, with a latest total market value of 8.599 billion Hong Kong dollars.

From a fundamental perspective, the sharp drop in the stock price of shiyue daotian this time may be related to the one-year stock unlocking period of IPO investors.

According to previous announcements, on October 11, shiyue daotian ushered in the one-year stock unlocking period for IPO investors, including pre-IPO investors such as YF Mega Media (HK) under Yunfeng Fund, Sequoia Capital China Growth, Ceruan Investment, etc. The lock-up period for their shares starts on October 11, 2023, and ends on October 12, 2024, lasting for 367 days.

Coincidentally, back in April, shiyue daotian experienced a surge and plunge in its stock price due to the unlocking of cornerstone investor Xinmin Times. On April 10, the company's stock price suddenly surged by 15.03%, then plummeted by over 9% intraday on the 11th, ultimately closing down by 5.41%.

Every time the price is unblocked, there is severe selling pressure. What exactly has happened to Shiyue Daotian?

High marketing expenses conceal the "growth bubble".

The history of Shiyue Daotian can be traced back to as early as 2005, when the company's founder couple entered the kitchen staple food industry, engaging in original grain trading business. In 2011, Shiyue Daotian established the two core brands of "Shiyue Daotian" and "Chaihuo Dayuan", heading towards brand development. Then, in 2018, the company launched the "Fuxiang Renjia" rice brand. As of now, Shiyue Daotian has formed a diverse business landscape with rice and coarse grains as the main products, and dried groceries such as grey dates, black fungus, lotus seeds as supplementary.

The reason why the company can stand out in the fiercely competitive staple food industry is probably mainly due to the company's comprehensive online marketing matrix. Specifically, different from traditional staple food enterprises like Yihai Kerry Arawana Holdings and Fulinmen deeply rooted in offline sales channels, Shiyue Daotian is one of the earliest kitchen staple food enterprises to explore online channels. The company, through live streaming, celebrity endorsements, brand days, and other marketing methods online, has turned its brand into an "internet celebrity". As of March 31, 2023, Shiyue Daotian has cooperated with over 4000 KOLs and KOCs.

Although this approach can quickly establish the company's online visibility, the resulting "high marketing expenses" will undoubtedly put certain pressure on the company's profitability.

In the first half of 2024, Shiyue Daotian achieved operating income of 2.62 billion yuan, a year-on-year increase of 17.7%; realized a net income of 0.1258 billion yuan attributable to the parent company, turning losses into profits. However, in the three years prior, from 2021 to 2023, Shiyue Daotian had incurred losses of nearly 0.8 billion yuan cumulatively, with losses of 0.1729 billion yuan, 0.5642 billion yuan, and 64.86 million yuan respectively.

Combining the company's previous financial data, it is clear that the high intensity of marketing investment has also put pressure on its profitability: from 2021 to 2023, the company's sales and distribution expenses were 0.223 billion yuan, 0.315 billion yuan, and 0.3241 billion yuan respectively, accounting for 6.2%, 7.0%, and 6.7% of the company's total revenue during the same period.

In the first half of this year, Shiyue Daotian's sales and distribution expenses further expanded. During the period, the company's sales and distribution expenses increased by 47.9% from the previous year's first half to 0.2396 billion yuan in the reporting period, mainly due to changes in sales channel structure and significant increase in commission fees related to social e-commerce platforms.

Although Shiyue Daotian achieved a turnaround in the first half of this year, the overall profitability of the company still needs to be further stabilized and improved. This unstable profit situation may affect investors' confidence in the company and the assessment of its long-term investment value.

At the same time, from the perspective of income structure, in the first half of 2024, Shiyue Daotian's performance growth was not dependent on its main rice business, but on miscellaneous grains, beans, and other products. This indirectly indicates the weak growth of the company's core business, with uncertain trends in future performance growth.

Specifically, the revenue from Shiyue Daotian's rice products decreased by 1.9% from 1.739 billion yuan in the same period last year to 1.707 billion yuan in the first half of 2024. The revenue from miscellaneous grains, beans, and other products increased by 151.9% from 0.288 billion yuan in the same period last year to 0.726 billion yuan in the reporting period, while the performance of dried goods and other products was poor, decreasing by 6.2% from 0.2 billion yuan in the same period last year to 0.187 billion yuan, accounting for a decrease in the proportion of total operating income from 9.0% in the same period of 2023 to 7.1%.

Furthermore, Shiyue Daotian's cash flow has further tightened— the company's cash and cash equivalents decreased by 58.7% from 1.427 billion yuan as of December 31, 2023, to 0.589 billion yuan as of June 30, 2024, mainly due to the repayment of loans and the purchase of wealth management products using idle funds during the reporting period.

Performance growth with declining cash flow, high marketing expenses but weak growth in the main business, this contradictory growth trend undoubtedly worries investors.

High marketing expenses, the unavoidable 'growth bubble'.

Looking through the shareholder structure of Shiyue Daotian before going public, it is not difficult to see that Shiyue Daotian may face the risk of relatively concentrated equity.

It is reported that before going public, Shiyue Daotian had a relatively concentrated ownership structure, with the founder's family holding over 70% of the shares, of which Wang Bing and Zhao Wenjun collectively held nearly 32%. In addition to the founder couple, two executive directors on the board are also from the founder's family. The general managers of Shiyue Daotian's two main subsidiaries, Shenyang Xinchang and Wuchang Caiqiao, are respectively Zhao Wenjun's nephew and sister, and the shareholders are all members of the founder's family.

Before the IPO, Qicheng Capital held 12.49% of the shares, making it the company's largest external shareholder; Sequoia China held 5.66%, MIC held 4.9%, Yunfeng Fund held 3.4%, CMC Capital held 1.81%, and Cernan Investment held 0.45%.

In addition, it is worth noting that shiyue daotian's cornerstone investment proportion is relatively low, accounting for about 13.51% of the global issuance. According to reports, shiyue daotian has only one cornerstone investor, namely Xinmin Times Agriculture Industry Development Co., Ltd., which, at the mid-price, collectively subscribed to HKD 0.105 billion, accounting for 13.51% of the total issue. This ratio is much lower compared to the cornerstone ratios of other recent IPO companies.

Due to the concentrated equity ownership, shiyue daotian also has relatively few outstanding shares. Once there is selling pressure, the stock price will face significant downward pressure, as shown below:

For example, shiyue daotian's major shareholders may choose to sell stocks after the lock-up period due to their own capital needs or changes in their outlook on the company's prospects. This concentrated selling pressure can put significant pressure on the stock price. Alternatively, some shareholders may have doubts about the company's long-term development prospects, such as challenges in business expansion, market competition, cost control, etc., leading them to believe that the current stock price is high and it is an appropriate time to sell.

Furthermore, even if major shareholders do not sell immediately, the market may still be concerned about the potential selling pressure after the lock-up period, which could be reflected in the stock price in advance, causing the stock price to decline before the lock-up period arrives.

In summary, as the lock-up period approaches, shiyue daotian's relatively unstable profitability, tightening cash flow, and sluggish core business growth may not instill much confidence in investors. This suggests that it may be difficult to be optimistic about the company's stock price performance during this lock-up period.