Three years after listing, its performance plummeted, and Jiahe Food, the leader in plant flour, expanded its coffee production capacity to “save itself”

Photo source: Visual China

Blue Whale News, February 13 (Reporter Zhang Jinglun)Recently, creamer king Jiahe Food (605300.SH) announced that the company will raise no more than 725 million yuan from no more than 35 qualified specific objects, of which 550 million yuan is planned to be used for coffee production expansion projects, and 175 million yuan is used to supplement working capital.

As major tea brands turn to health brands, abandoning vegetable fat powder has become a new trend in the industry, which has also caused vegetable fat powder supplier Jiahe Food to suffer heavy losses in performance. Against the backdrop of a sharp decline in its core business, plant fat, Jiahe Food is trying to create a second growth curve by expanding its coffee production capacity.

However, compared with the maturity of the vegetable fat powder business, Jiahe Food’s scale in the coffee business is still small, and its growth has slowed down significantly. Jiahe Food, which is in the throes of transformation, has failed to take off quickly, and its old business is facing a shrinking market. Whether self-help will be effective is still unclear.

Core business plants suffered heavy losses

In 2021, Jiahe Food will be listed on the main board of the Shanghai Stock Exchange. It is mainly engaged in the research and development, production and sales of powdered oils, coffee, plant-based and other products. It is a supplier of brands such as Mixue Ice City, Guming, Shanghai Aunt, and CoCo Duke.

As the first stock of vegetable fat powder, vegetable fat powder (powder oil) products have always been the largest source of revenue for Jiahe Food, accounting for more than 60% of historical revenue. With the vigorous development of milk tea economy, vegetable fat powder, as the main ingredient, naturally fully benefits. Due to the in-depth cooperation with new tea and beverage companies, Jiahe Food’s performance has also continued to improve on the new tea and beverage industry. According to financial reports, Jiahe Food’s revenue will continue to grow in 2019 and 2023, with growth rates of 15.11%, 2.07%, 28.02%, 1.17%, and 17.04%.

But in recent years, under the wave of health, more and more people have begun to resist vegetable fat powder (which may contain trans fatty acids). In order to cater to the needs of consumers, mid-to-high-end tea brands have labeled 0 vegetable fat powder and collectively abandoned vegetable fat powder.

In September 2023, Xicha announced the launch of the first new real milk for tea drinks, 3.8 source animal milk, and emphasized that this milk has zero vegetable fat powder, zero additives, and a protein content of 3.8 g/100mL. In addition, Bawang Chaji announced the use of a new base product, Ice Blanc Non-Hydrogenated Base Milk, in stores, and claimed that the base achieved 0 creamer, 0 vegetable fat powder, and 0 hydrogenated vegetable oil. Mo Yogurt has also upgraded a new version of its milk base in stores across the country, claiming to have no vegetable fat powder, no hydrogenation process, and no artificial trans fatty acids.

Although Jiahe Food has completely stopped selling products containing trans fatty acids at the end of 2022, under the general trend of the industry, the company’s vegetable fat powder business has still been greatly affected.

In the first three quarters of 2024, Jiahe Food’s revenue was only 1.68 billion yuan, a year-on-year decrease of 19.46%; parent net profit dropped by 59.88%, to 82.66 million yuan. Mainly dragged down by the core business of powder oils, the business only achieved revenue of 835 million yuan in the first three quarters, a sharp drop of more than 42%. Behind this is the significant shrinkage of chain channels dominated by new tea drinks.

In addition, dairy companies such as Yili, Mengniu, and Junlebao have increased cooperation with B-end catering channels, which has further squeezed the market share of companies like Jiahe Food.

At the same time, as more and more new tea brands vigorously invest in building supply chains, this also means that they have directly left the factory and started business as suppliers. For upstream suppliers like Jiahe Food, they will face the dual challenge of losing major customers and becoming competitors with customers. Previously, Jiahe Food mentioned in the investor relations activity record that Mixue Ice City is building its own 100,000-ton vegetable resin powder production line, which will not be ruled out in the later stage. The company is also continuing to explore customers and channels. Eliminate the impact of competitors or customers building their own supply chains.

Promote self-help in the coffee industry”

For Jiahe Food, against the background of a sharp decline in its core business, plant fat, it needs to use its coffee business to tell a new story.

In fact, planning for this fixed increase began in May 2023, and it has been more than a year since it received the approval of the China Securities Regulatory Commission in January this year.

It is not sudden that Jiahe Food has increased its investment in the coffee field. As early as 2017, it has vigorously deployed its coffee business, trying to build it into the second growth curve. The products cover instant, coffee solid drinks, cold extracted coffee liquor, roasted coffee beans, etc., and are mainly aimed at the B-end market.

At present, Jiahe Food’s new tea customers have already joined the coffee business. The number of lucky coffee stores under Mixue Ice City exceeds 3200, and the number of Shanghai coffee stores under Aunt Shanghai also exceeds 1800. In addition, Guming has also begun to involve freshly ground coffee products in recent years, and its products have covered more than 2000 stores.

Industry insiders believe that Jiahe Food’s advantage in developing its boutique coffee business is that coffee is in line with the development direction of its existing customers. Jiahe Food can collaborate with its own vegetable fat powder business without having to make great efforts to develop new customers.

On the other hand, with the entry of players in various markets, China’s coffee market has leapfrogged from the era of a single product dominated by low-end instant instant and high-end freshly ground, into various price segments, various tastes, and various consumption scenarios. A diversified era of product varieties. You can find your own user group for freshly ground, ready-to-drink, pre-packaged, capsules, etc.

Jiahe Food’s coffee production line is mainly traditional instant coffee, which is no longer able to meet downstream coffee consumption demand. The problem of insufficient structural production capacity urgently needs to be solved. ldquo; The company’s current coffee product production line is mainly traditional instant coffee, which can no longer meet the production demand of downstream customers for high-quality coffee.” rdquo; Jiahe Food said so.

However, the coffee business, which has been highly expected to hedge against the decline in the vegetable fat finishing business, has not been fully established. In the first three quarters of 2024, its coffee business grew by 7.17%, while in 2021 and 2023, revenue growth rates were approximately 134%, 109%, and 22% respectively. Moreover, due to its small base, it failed to drive Jiahe Food’s overall performance. In the first three quarters of last year, coffee products contributed 193 million yuan in revenue to the company, which is a big gap compared with the 835 million yuan in powdered oils.

In addition, Jiahe Food is still a B-end supply chain company, and the subsequent growth of the coffee business is still highly dependent on the expansion of major customers and market demand.

This investment project plans to build a coffee production base. After completion, it will produce an annual output of 16000 tons of roasted coffee beans, 3000 tons of ground coffee powder, 8000 tons of hot and cold extracted coffee liquor, 10000 tons of RTD ready-to-drink coffee and 610 tons of freeze-dried and blended flavor coffee production capacity. Whether future sales growth can absorb new production capacity remains to be tested by time.

Previously, a research report by Open Source Securities gave risk warnings that the coffee business was progressing less than expected, raw material prices fluctuated, food safety issues, etc. Huaxin Securities Research Report gave warnings about risks such as termination of cooperation with major customers, less than expected improvement in capacity utilization, and less than expected development of C-terminals.