Product Mix Shift to Drive Sales Growth for Haitian, but Will Keep Margins Below Historical Levels

Foshan Haitian strives to command competitive advantage in the condiment industry in China through scale, with large sales volume and high velocity creating stickiness among distributor partners and driving down operating costs. The company’s operating expenses ratio is among the lowest versus peers, resulting in mid-20% net margin levels. Through years of channel endeavors, the company has set up the most extensive distribution network in the industry. With its focus on the mass market segment, it has established a leadership position across the catering and retail channels in the key condiment category, soy sauce, which contributes more than half of its revenue. Competitive product pricing, enabled by cost advantage, is also key for its major customers, catering outlets. We see this as a virtuous cycle that allows Haitian to maintain its leading position in the industry and generate excess return consistently. Between 2010 and 2020, Haitian’s revenue and net income have grown at CAGRs of 15% and 26%, respectively.