China Feihe (6186 HK) Summary
Core Content and Key Information
China Feihe is a Hong Kong-listed company operating in the China consumer staples sector, specifically within the food and beverages segment. The report discusses the company's performance, financial forecasts, and valuation as of the end of 2022 and beyond.
Earnings and Revenue Outlook
- Earnings Revision: CMBIGM has moderately trimmed its 2022/23E earnings by 6–7% annually due to a lower gross profit margin (GPM) and higher selling expenses.
- Guidance Maintained: Management maintains its guidance for 2H revenue growth and a decline in LSD revenue for 2022E.
- Margin Trends: The company expects GPM and net profit margin (NPM) to improve in 2H, with full-year GPM at 66–68% and NPM at ~26%. Selling expense ratio is projected to stabilize at ~30% in the long term.
Sales Mix and Market Trends
- Sales Mix Upgrade: The company benefits from the growth of super premium and super premium+ segments, which saw teens of growth YoY in 1H22. These segments make up ~59% of Feihe's revenue.
- Market Challenges: The infant milk formula (IMF) market has faced pressure in recent years, but the company remains optimistic about the long-term growth potential of new product categories.
New Product Categories
- Children Milk Powder: Accounts for ~12% of infant milk powder revenue in 1H22 and is expected to increase in contribution.
- Adult Milk Powder: Still has a small revenue contribution but is being explored as a new growth area.
- Other Opportunities: Expansion into cheese and infant complementary food is under consideration.
- Margin Impact: Margins could trend downward as new product categories contribute more, with GPM for children milk powder at ~60% and adult milk powder at ~50%.
Financial Highlights
Earnings Summary (YE 31 Dec)
| FY |
Revenue (RMB mn) |
YoY growth (%) |
Net profit (RMB mn) |
EPS (Basic) (RMB) |
YoY growth (%) |
| 2020A |
18,592 |
35.5 |
6,871.0 |
0.77 |
22.5 |
| 2021A |
22,776 |
22.5 |
7,436.9 |
0.83 |
72.6 |
| 2022E |
21,177 |
(7.0) |
5,228.9 |
0.59 |
(23.9) |
| 2023E |
23,536 |
11.1 |
6,112.1 |
0.68 |
16.9 |
| 2024E |
25,851 |
9.8 |
6,672.2 |
0.75 |
9.2 |
Valuation
- Target Price: HK$7.60 (down from previous TP of HK$8.40)
- Current Price: HK$5.92
- P/E Ratio: 11.5x end-22E, which is -1 standard deviation below the long-term average
- P/B Ratio: 1.6x end-22E, showing a decline from previous years
- Dividend Yield: 5.5% for 2024E, indicating a relatively attractive yield
Analyst Ratings and Recommendations
- Ratings: BUY (Maintain)
- Target Price: HK$7.60
- Up/Downside: 28.3%
Share Performance
| Period |
Absolute Return (%) |
Relative Return (%) |
| 1-mth |
-8.3 |
-3.4 |
| 3-mth |
-28.8 |
-19.8 |
| 6-mth |
-27.8 |
-22.8 |
Shareholding Structure
| Shareholder |
Percentage |
| Garland Glory Holdings Limited |
43.6% |
| North Haven Private Equity |
7.8% |
| Asia IMF Hold |
- |
Financial Summary
Income Statement
| Item |
2019A |
2020A |
2021A |
2022E |
2023E |
2024E |
| Revenue |
13,722 |
18,592 |
22,776 |
21,177 |
23,536 |
25,851 |
| Gross Profit |
9,610 |
13,480 |
16,008 |
14,116 |
15,821 |
17,484 |
| Net Profit |
3,935 |
7,437 |
6,871 |
5,229 |
6,112 |
6,672 |
Balance Sheet
| Item |
2019A |
2020A |
2021A |
2022E |
2023E |
2024E |
| Total Assets |
23,004 |
28,323 |
31,481 |
33,137 |
37,215 |
41,599 |
| Total Equity |
13,030 |
17,747 |
20,921 |
22,688 |
26,709 |
30,936 |
| Current Ratio |
2.3 |
2.6 |
2.9 |
2.9 |
3.3 |
3.7 |
Cash Flow
| Item |
2019A |
2020A |
2021A |
2022E |
2023E |
2024E |
| Net Cash from Operations |
5,181 |
7,751 |
6,815 |
5,809 |
6,671 |
7,316 |
| Net Cash from Financing |
4,123 |
(2,543) |
(4,245) |
(3,662) |
(2,192) |
(2,445) |
Conclusion
Despite the challenges in the IMF market, China Feihe continues to show a steady recovery in the second half of the year. The company is expected to benefit from its strong position in the super premium and super premium+ segments, which are showing growth. While the company's margins may face downward pressure due to the expansion into new product categories, the analyst maintains a BUY rating, suggesting potential for a return of over 15% in the next 12 months. The current valuation, based on a 11.5x P/E ratio, is considered attractive, although the low earnings visibility in the IMF industry may still impact investor confidence.
