The pre -packaged rice supplier said that his profit almost doubled in the first half of the year, because it is increasingly focusing on premium products
Main takeaway restaurants:
- Shiyue Daotian said that the adapted profit in the first half of the year increased by 90% or more, because it puts a greater emphasis on premium products with a higher margins
- The stock of the rice seller is more appreciated than other food companies, even after JD.com founder and chairman Richard Liu had sold his interest earlier this year
Investors are historically removed from food stocks, deterred by their low growth and thin profit. But pre -packaged rice seller Shiyue Daotian Group Co. Ltd. (9676.HK) can be an exception, which shows that there are still large sales and profit to be found in the huge rice market of China. The strong financial health was the front and center earlier this month when the company said it was expected to report The adjusted net profit increased by 90% or more in the first half of this year. Packed by the news, the shares of Shiyue Daotian rose no less than 17.6% the next day, before she closed 8.5%.
The company attributed the large increase to a better product mix, as well as a greater collaboration with premium sales channels and the growing influence of the brand, which in turn increased sales compared to its different channels.
Founded by chairman Wang Bing and his husband, executive director Zhao Wenjun, Shiyue Daotian entered the kitchen food industry in 2005. It established its Core Shiyue Daotian, which means “October rice flakes” and firewood in the Courtyard brands in 2011, which sold almost half of its products online.
The company is one of the many emerging and potential leaders in the very fragmented market for China’s most important staple. It is recently successful by going up the value chain to offer more premium products that meet the growing middle class of China.
Basic Breadwinner in Rice
Shiyue Daotian’s turnover reached 5.75 billion Yuan ($ 800 million) last year, an increase of 18% on an annual basis. Rice products contributed 4 billion yuan, or about 70% of the total, followed by large grains, beans and other products, which yielded 470 million Yuan, good for a much smaller 8.2%. E-commerce platforms were one of the most important sales channels in the company, which contributed 41.6% of the total.
Rice is the largest product in the huge basic market in China and generates 723.4 billion Yuan in 2022 alone, accounting for 38.8% of the total turnover. But the sector is quite typical of the low growth for food products, expected to be 791.8 billion yuan in 2027, which translates into the annual growth of only 1.8% between 2022 and 2027.
Shiyue Daotian focuses on pre -packaged rice, which is usually packed prior to sale in quantities of a maximum of 25 kilograms. Such products enjoy greater popularity than other riding goods, which means that the category can grow faster due to a greater convenience of transport and better preservation of qualities such as freshness and taste. China’s pre -packaged rice market is expected to grow by 4.9% annually to reach 164.1 billion Yuan by 2027, making it much faster in the same period than the wider rice market.
Premium prices for Premium Rices
The wider pre -packaged rice market is widely divided into the premium and normal rice segments. Premium products usually contain less than 15% broken grains. Such lower rates often mean higher grain integrity and quality, so that sellers can charge more for those premium products.
According to the prospectus of Shiyue Daotian for his IPO from 2023, the average selling price for pre -packaged premium rice in 2022 exceeded more than 7.4 yuan per kilogram. For comparison, regular rice products were on average 6.6 yuan per kilogram, which means that premium rice ordered a premium of more than 10%.
Shiyue Daotian is already a leader in pre -packaged premium rice, who checks 4% of the segment in China in 2022. For comparison, the combined market share for the top five players was only 11.1%, which suggests an important space for consolidation. That means that Shiyue Daotian can be well positioned to take advantage of the growing demand for premium rice of a growing middle class that is increasingly willing to spend more on higher quality food.
High dividend benefit
In his short history as a listed company, Shiyue Daotian has also become known for his generosity for shareholders. At the time of his IPO, the company promised that it would distribute at least 20% of its profit as dividends. But it surpassed that standard in 2024 and announced total dividends of 175 million Yuan, equal to 50.1% of the adapted profit.
Despite such generosity, the shares of the company have delivered a lukewarm performance since the IPO. After the sale of shares for HK $ 15.36 each, the share jumped shortly above HK $ 20 in the first few weeks of trade. But then it went in a slow decline. Even after invoicing in the recent leap after the positive profit warning, the last closure of HK $ 8.69 is still more than 40% below the IPO price.
In particular, one of the controversial shareholders of the company, Richard Liu, founder and chairman of e-commerce Gigant JD.com, sold his interest earlier this year. According to Hong Kong Stock Exchange files, LIU has reduced its participations by 13.26 million shares, 12.28 million shares and 1.1 million shares on 9, 10 and 14, respectively, which resulted in HK $ 217 million ($ 28 million). In that process, his interest in the company fell from 19.27% to 12.79%. Further divestments can put pressure on the share price if people interpret such sales as a lack of trust in the company’s prospects.
Moreover, the valuation of Shiyue Daotian looks relatively high, even after his post-ipo decreases. Even if we assume that the profit will double this year, based on the profit forecast of the first half, the company would still have a relatively high forward price -earning (p/e) ratio of 18 times. That is the case for following P/E ratios for peers such as WH Group (0288.hk) on 8.2 times, Tingyi (0322.hk) on 16 and Want (0151.HK) 14 times. This may mean that Shiyue Daotian’s assets to maintain its current share price can depend on whether the company will maintain its generous dividend payment ratio this year.
In general, Shiyue Daotian seems to benefit from the rising Chinese demand for higher quality food products, even if the stock has been under pressure in the past year. With a large shareholder such as Richard Liu who sold his interest and a valuation above sector fields, any reduction in the dividend payment can further put pressure on the shares. That means that investors may think twice before this emerging star is tasted in China’s premium rice sector.
Benzinga Disclaimer: This article is of an unpaid external contribution. It does not represent Benzinga’s report and is not edited for content or accuracy.
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