20140529-DBS_Group-Taking_a_breather_11页_225kb

Summary of Bloomberg: 151 HK Equity | Reuters: 151.HK

Core Content

This report provides an analysis of Want Want China, a major snack food company in China, focusing on its financial performance, growth prospects, and valuation. The report is issued by DBS Vickers and highlights the company's performance in the first half of 2014 and future expectations for FY14 and FY15. The analysts recommend a HOLD with a revised target price of HK$11.60, which is below the previous target of HK$12.20 and in line with its historical average of 24x FY15 PE.

Main Points

• Company Overview: Want Want China is a leading player in the snack food industry in China, with a diverse product portfolio across rice crackers, dairy products, and snack foods.
• 1H14 Performance:
  • The company experienced slower growth in dairy products due to ASP hikes and seasonal effects from an early Chinese New Year.
  • Sales growth for rice crackers was impacted by the early CNY, but the segment remains a stable contributor.
  • The new product pipeline is stronger in FY14, with approximately 50-70 SKUs, expected to contribute about 5% of sales, though the majority will be launched in 2Q/3Q.
• Margin Outlook:
  • Margins are expected to remain steady, but upside is capped due to higher-cost inventory and initial dilution from new product launches.
  • EBIT margin is projected to exceed 20%, but a strong expansion similar to the past two years is unlikely.
• Financial Forecasts:
  • Revenue: Expected to grow from US$2,947m in FY14 to US$4,872m in FY15.
  • EBITDA: Projected to increase from US$1,092m in FY14 to US$1,219m in FY15.
  • Net Profit: Forecasted to rise from HK$741m in FY14 to HK$827m in FY15.
• Valuation Metrics:
  • PE (X): Expected to decrease from 24.8x in FY14 to 22.2x in FY15.
  • P/Book Value (X): Declined from 11.5x in FY14 to 6.8x in FY15.
  • EV/EBITDA (X): Projected to decline from 16.1x in FY14 to 14.4x in FY15.
• Recommendation:
  • The analysts maintain a HOLD rating due to slower near-term growth and lack of clear catalysts.
  • The target price is set at HK$11.60, based on a 24x FY15 PE.
• Peer Comparison:
  • The company's performance is compared with peers in the consumer goods and food producers sectors.
  • The average PE for the sector is around 23.3x, and the average P/B is around 3.0x.
  • The company is below the consensus in FY14 and FY15, with a gap of 3.9% and 7.8% respectively.

Key Information

Financial Highlights

Valuation Metrics

Segmental Breakdown

Performance by Product Segments

• Dairy Products and Beverages:
  • Expected to be the main growth driver.
  • 70% of planned capex in 2014 will be allocated to this segment.
• Rice Crackers:
  • Historical performance shows seasonal variation based on CNY timing.
  • Sales growth in 1H14 is expected to be around 7%.
• Snack Foods:
  • A saturated market with substitution risks.
  • Strong new product pipeline expected to surpass rice crackers in FY14.
  • Forecasted sales CAGR of 12% from 2013 to 2015.

Analysts

• Alice HUI CFA: +852 2971 1960 | alice_hui@hk.ddsvickers.com
• Alison Fok: +852 2971 1938 | alison_fok@hk.dbsvickers.com

Risk and Disclaimer

• The report is prepared by DBS Vickers (Hong Kong) Limited and is for clients of the DBSV Group only.
• Information is based on sources believed to be reliable but not guaranteed for accuracy.
• Opinions and forecasts are subject to change without notice.
• The report does not take into account the specific investment objectives or needs of any individual.
• DBS Vickers accepts no liability for any loss arising from the use of this report.

Conclusion

Want Want China is expected to maintain a stable market position, with a focus on its dairy and snack food segments as growth drivers. However, near-term growth is expected to be slower due to ASP hikes and seasonal effects. The analysts maintain a HOLD rating and revise the target price to HK$11.60, reflecting the company's current valuation and growth expectations.