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Author: Taylor, Editor: Xiaoshimei

Juewei Foods has been filed a case.

On August 15, Juewei Foods issued an announcement stating that the company received a "Notice of Case Filing" issued by the China Securities Regulatory Commission. Because the company was suspected of violating laws and regulations on information disclosure, in accordance with the "Securities Law of the People's Republic of China" and the "Administrative Penalty Law of the People's Republic of China" and other laws and regulations, on June 7, 2024, the China Securities Regulatory Commission decided to file a case against the company.

In terms of performance, in the first quarter of 2024, Juewei Food’s total operating revenue was 1.695 billion yuan, a year-on-year decrease of 7.04%; net profit attributable to shareholders was 165 million yuan, a year-on-year increase of 20.02%; and non-net profit was 156 million yuan, a year-on-year increase of 15.66%.

On August 16, Juewei Foods was stuck at the lower limit. Since the beginning of this year, its stock price has fallen by nearly 50%, and its market value has evaporated by about 8 billion yuan.

Around 2014, Juewei Foods' annual net profit was already 200 to 300 million yuan, and its boss Dai Wenjun completed the original accumulation of capital by selling duck necks. At the same time, he gradually realized the limitations of operating a single product, and it was imperative to expand the business territory.

With the establishment of Wangju Capital, Juewei Foods began to make external mergers and acquisitions, focusing on investment and empowerment in industries such as stewed food, condiments, and light catering. This can not only open up the industrial chain and strengthen the synergy with existing businesses, but also open up new growth curves and increase profits.

In order to get more funds, Dai Wenjun frantically cashed out in the secondary market, and the amount of share reduction in 2021 alone reached billions. By the first half of this year, Absolute Food's long-term equity investment had reached 2.645 billion, accounting for nearly 30% of total assets.

Focusing on the upstream and downstream of the industry, Juewei Foods has successively invested in dozens of companies, including well-known catering and seasoning brands such as Hefu Lamian, Qianwei Yangchu, Xingfu Mall, and Yaomazi, as well as cold chain distribution companies such as Jiangxi Anan and Jiangxi Xianpei, and similar braised food companies such as Liao Ji Bang Bang Chicken, Changsha Yanjia, Fuzhou Wuzhua, and Lu Jiangnan.

Dai Wenjun hopes to create a food ecosystem, but the reality is obviously not as good as he imagined.

According to Juewei Food’s annual financial reports, from 2016 to 2022, the company’s investment income from associated and joint ventures was positive only in 2017 and 2019, and it was in the red for the rest of the time. The worst years were 2020-2022, with a total loss of nearly 300 million yuan, which directly damaged the current income statement.

Looking into the causes, the increasing intensity of competition in the catering industry is the decisive factor.

According to KPMG data, in 2021, the catering industry's annual financing amount exceeded the total financing in 2019 and 2020. This year, the number of newly registered catering companies in China reached 3.34 million, a year-on-year increase of 34.7%, and an increase of more than 40% over the same period in 2019.

In China, Zhou Hei Ya is Juewei Foods’ strongest competitor, but their strategies are completely different.

Juewei Foods adopts the franchise system, giving part of the profits to franchisees. The advantage of this model is that it can expand territory and make money on a large scale in a short period of time.

In the past, Zhou Hei Ya has been operating directly, focusing on its own brand cultivation and taking steady steps. Most of its stores are located in high-potential locations such as airports, railway stations, and subway stations. The advantage of this model is that it can obtain brand premiums and keep all the money in its own pockets, but the disadvantage is also obvious, that is, slow expansion. In 2019, Zhou Hei Ya had only 1,301 stores, while Juewei had 10,598 stores, a difference of eight times, but the revenue gap between the two companies was less than twice.

At the end of 2019, Zhou Hei Ya started the so-called "third entrepreneurial venture", the core content of which was to open up the franchise model.

At the beginning, the company set an initial capital requirement of 5 million. Compared with the 35,000 stall fee of Juewei Food next door, this regulation is obviously a bit out of touch with reality. In order to speed up the opening of stores, Zhou Hei Ya lowered the threshold and reduced the franchise fee directly to 300,000. The effect was immediate. In 2021, the total number of the company's offline stores reached 2,781, a year-on-year increase of 58.5%. In June 2022, Zhou Hei Ya further expanded its downward compatibility and opened the single-store franchise 2.0 light version. The overall investment of a single store was reduced from the initial 200,000 to 250,000 yuan to 80,000 to 100,000 yuan.

At this point, Zhou Hei Ya’s business model has completely changed.

The chain mode has changed from the original "pure direct operation" to "direct operation, franchise, O&O three-wheel drive", and the operating mode has also drifted from the original heavy assets to light assets. In the past, the company only focused on high-potential stores, but now it has completed full coverage of high-potential, community, and sinking markets. From 2019 to 2022, the number of Zhou Hei Ya franchise stores soared rapidly from 19 to 1,983, and the proportion of O&O channel revenue also increased from 23.8% to 32.3%.

Obviously, Zhou Hei Ya has taken the path of surrounding the countryside with the city, and has directly reached out to Juewei's hinterland. In the past, the two companies might have been able to maintain a sense of boundary of non-interference, but now they are inevitably going to draw their swords against each other. Judging from the respective situations of the two sides in the battle, Juewei Foods may be the one under greater pressure. First of all, Juewei's high-speed expansion cycle has passed. As of December 31, 2023, there are about 16,000 stores, and it is not easy to double the expansion. Zhou Hei Ya has a total of 3,816 offline stores. If it wants to continue to sink, there is still a lot of room for growth.

Secondly, from the perspective of situation, Zhou Hei Ya is on the offensive side, while Juewei is on the defensive side. Zhou Hei Ya, which has lowered its profile, is equivalent to attacking from top to bottom, which is relatively easier.

Currently, Juewei Foods’ profit level is twice that of Zhou Hei Ya, but its market value is three times that of the latter. The market has obviously given Juewei Foods a certain valuation premium, but how long this valuation premium can last is a big question mark.

Disclaimer

The content of this article related to listed companies is the author’s personal analysis and judgment based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to interim announcements, regular reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.