20230814-招银国际-中国飞鹤-06186.HK-1H_below_us__near-term_recovery_could_just_be_wishful_thinking_5页_1mb

Analysis and Summary of China Feihe (6186 HK) Report

Company: China Feihe is a company focused on the infant formula milk powder (IMF) sector, operating in the consumer staples industry. Listed on the Hong Kong Stock Exchange.

Performance Overview for 1H 2023:

• Financial results for the first half of 2023 missed market expectations.
• Revenue remained flat compared to consensus estimates (contrasted with an expected 'low single-digit increase' or similar, though specifics on estimates vary slightly).
• Net profit saw a significant decline, ranging from 23% to 36% year-on-year, while consensus estimates suggested relative stability.
• Reasons provided include likely persistent low birth rates, intensifying industry competition, unfavourable product mix, and under-utilized production capacity leading to inefficiencies.
• Overall, the report suggests that recovery assumptions in the near term are unlikely and potentially wishful thinking.

Analyst Rating and Recommendations:

• Maintains a HOLD rating with a target price lowered to HK$4.9, down from a previous HK$5.9.
• Prefers Yili (stock code 600887CH) with a BUY recommendation, citing its more diversified product base and positive momentum from new launches as factors balancing potential industry headwinds.
• The emphasis on Yili highlights the risks associated with infant formula in a low-birth-rate environment, contrasting its performance.

Key Risk Factors and Viewpoints:

• Demographic headwinds: Low birth rates and potential increased family planning are major concerns, with consumption not easily translating into demand.
• Competition and margins: Heightening competition increases the need for promotions and contributes to margin pressure under an unfavourable product mix and operational inefficiencies.
• Prolonged outlook: An inflection point for recovery is deemed remote, and time-consuming factors like shifts in fertility intention need to be overcome.
• 2023 Guidance: Revenue is expected to decline by around 4%, based on updated estimates which are now below consensus (Bloomberg consensus), possibly leading to management guidance revisions by year-end.

Market Position and Valuation:

• Current stock performance has been weak, with declines over various periods, contrasting with the company's fundamentals.
• Valuation metrics (like P/E and P/B) indicate the stock is, in the analyst's view, below its long-term average, reflecting cautiousness about the IMF segment's prospects until a demographic or demand catalyst emerges.
• Compared to Yili, which gets a higher valuation multiple due to stronger positive momentum, China Feihe's prospects are weighed more heavily on structural issues.

Conclusion:
China Feihe's outlook remains cautious, with a HOLD rating recommended due to demographic, competitive, and operational challenges. Alternative investments like Yili are highlighted for potentially better risk-adjusted returns.