Sustaining Sturdy Dividends Is Key For Shiyue Daotian To Assist Its Inventory Value 

The pre-packaged rice provider mentioned its revenue almost doubled within the first half of the 12 months because it more and more focuses on premium merchandise

Key Takeaways：

• Shiyue Daotian mentioned its adjusted revenue rose 90% or extra within the first half of the 12 months, because it locations larger emphasis on higher-margin premium merchandise 
• The rice vendor’s inventory is extra extremely valued than different meals corporations, even after JD.com founder and Chairman Richard Liu bought down his stake earlier this 12 months

Traders have traditionally shied away from meals shares, delay by their low development and skinny income. However pre-packaged rice vendor Shiyue Daotian Group Co. Ltd. (9676.HK) may be an exception, exhibiting there are nonetheless large gross sales and income to be present in China’s large rice market. Its robust monetary well being was front-and-center earlier this month when the corporate mentioned it anticipated to report its adjusted web revenue jumped 90% or extra within the first half of this 12 months. Buoyed by the information, Shiyue Daotian’s shares surged as a lot as 17.6% the next day, earlier than closing up 8.5%.

The corporate attributed the massive enhance to a greater product combine, in addition to larger cooperation with premium gross sales channels and its rising model affect, which in flip boosted gross sales over its varied channels.

Based by Chairman Wang Bing and his partner, govt director Zhao Wenjun, Shiyue Daotian entered the kitchen staple meals trade in 2005. It established its core Shiyue Daotian, which implies “October rice paddies,” and Firewood Courtyard manufacturers in 2011, promoting almost half of its merchandise on-line.

The corporate is one in every of a number of rising as potential leaders within the extremely fragmented marketplace for China’s main staple. It’s discovering current success by shifting up the worth chain to supply extra premium merchandise that cater to China’s rising center class.

Staple breadwinner in rice 

Shiyue Daotian’s income reached 5.75 billion yuan ($800 million) final 12 months, up 18% year-on-year. Rice merchandise contributed 4 billion yuan, or about 70% of the entire, adopted by coarse grains, beans, and different merchandise, which introduced in 470 million yuan, accounting for a a lot smaller 8.2%. E-commerce platforms had been one of many firm’s most important gross sales channels, contributing 41.6% of the entire.

Rice is the most important product in China’s large staple meals market, producing 723.4 billion yuan in 2022 alone, accounting for 38.8% of general gross sales. However the sector is kind of typical of the low development for meals merchandise, projected to succeed in simply 791.8 billion yuan by 2027, translating to annual development of simply 1.8% between 2022 to 2027.

Shiyue Daotian focuses on pre-packaged rice, which is often packed previous to sale in portions not exceeding 25 kilograms. Such merchandise get pleasure from larger recognition than different rice items, permitting the class to develop extra shortly resulting from larger ease of transport and higher preservation of qualities like freshness and style. China’s pre-packaged rice market is predicted to develop by 4.9% yearly to succeed in 164.1 billion yuan by 2027, increasing far quicker than the broader rice market over the identical interval.

Premium costs for premium rices

The broader pre-packaged rice market is broadly divided into the premium and strange rice segments. Premium merchandise usually comprise lower than 15% damaged grains. Such decrease charges usually signify greater grain integrity and high quality, permitting sellers to cost extra for these premium merchandise.

In keeping with Shiyue Daotian’s prospectus for its 2023 IPO, the common retail worth for pre-packaged premium rice exceeded 7.4 yuan per kilogram in 2022. By comparability, common rice merchandise averaged 6.6 yuan per kilogram, which means premium rice commanded a premium of greater than 10%.

Shiyue Daotian is already a frontrunner in pre-packaged premium rice, controlling 4% of the phase in China in 2022. By comparability, the mixed market share for the highest 5 gamers was simply 11.1%, suggesting important room for consolidation. Which means Shiyue Daotian might be well-positioned to capitalize on rising demand for premium rice from a rising center class that is more and more prepared to spend extra on higher-quality meals.

Excessive dividend payout 

In its transient historical past as a publicly traded firm, Shiyue Daotian has additionally turn into identified for its generosity to shareholders. The corporate pledged on the time of its IPO that it might distribute at the least 20% of its revenue as dividends. However it far exceeded that commonplace in 2024, saying complete dividends of 175 million yuan, equal to 50.1% of its adjusted revenue.

Regardless of such generosity, the corporate’s inventory has turned in a lukewarm efficiency since its IPO. After promoting shares for HK$15.36 apiece, the inventory briefly jumped above HK$20 in its first few weeks of buying and selling. However then it went right into a gradual decline. Even after factoring within the current leap following the constructive revenue alert, the inventory’s newest shut of HK$8.69 remains to be greater than 40% under its IPO worth.

Notably, one of many firm’s high-profile shareholders, Richard Liu, founder and chairman of e-commerce large JD.com, was promoting down his stake earlier this 12 months. In keeping with Hong Kong Inventory Trade filings, Liu diminished his holdings by 13.26 million shares, 12.28 million shares, and 1.1 million shares on April 9, 10 and 14, respectively, netting him HK$217 million ($28 million). In that course of, his stake within the firm fell from 19.27% to 12.79%. Any additional divestments might stress the inventory worth if individuals interpret such gross sales as exhibiting a insecurity within the firm’s prospects.

What’s extra, Shiyue Daotian’s valuation seems comparatively excessive, even after its post-IPO declines. Even when we assume its revenue will double this 12 months, primarily based on its first-half revenue forecast, the corporate would nonetheless have a comparatively excessive ahead price-to-earning (P/E) ratio of 18 occasions. That is forward of trailing P/E ratios for friends like WH Group (0288.HK) at 8.2 occasions, Tingyi (0322.HK) at 16 and Need Need (0151.HK) at 14 occasions. That might imply that Shiyue Daotian’s means to keep up its present share worth might rely on whether or not the corporate maintains its beneficiant dividend payout ratio this 12 months.

General, Shiyue Daotian seems set to learn from rising Chinese language demand for higher-quality meals merchandise, whilst its inventory has come underneath stress during the last 12 months. With a significant shareholder like Richard Liu promoting down his stake and a valuation above sector friends, any discount in its dividend payout might additional stress the inventory. Which means traders might need to suppose twice earlier than sampling this rising star in China’s premium rice sector.

Benzinga Disclaimer: This text is from an unpaid exterior contributor. It doesn’t signify Benzinga’s reporting and has not been edited for content material or accuracy.