The worst time for condiments has passed, with secular growth potential intact.

2021 was a bitter year for condiment companies, due to channel destocking triggered by  community group purchase, weak demand and cost inflation. Despite this, the sector’s  promising long-term outlook remains unchanged to us, supported by upside in  volume/price, current development stage and benign competition landscape. Looking at  the short term, we think the worst time for the sector has passed, given industry-wise channel destocking (though not for all) almost came to an end in 3Q21 and widespread exfactory price hikes announced in 4Q21. As a result, we expect average YoY revenue  growth of five condiment names we cover to accelerate to 18% in 2022 from 6% 2021. 

Margins to rebound from 2Q22 on top of price hikes and stabilised cost. As unit  cost of raw materials for condiments has stabilised at highs from March 2021, we expect  condiment companies’ gross margin to expand YoY from 2Q22 (+1pp YoY in 2022),  driving earnings to grow 18%-51% YoY. Further decrease in cost could be upside surprise.