The results in the first half of fiscal year 2022 were in line with expectations. Revenue from Vitasoy fell 18.3 per cent year-on-year to HK $3.604 billion. Sales in mainland China fell 28.9 per cent year-on-year to HK $2.23 billion, while sales in Hong Kong rose 3.5 per cent to HK $1.011 billion. Gross profit margin fell 6.7 percentage points year-on-year to 47.9%, while distribution fee rate surged 8.8 percentage points to 32.6%. Overall, shareholder net profit fell 95.1 per cent year-on-year to HK $33 million, in line with the profit warning issued in August 2021 and our expectations.

Regain confidence in Vitasoy's business outlook in mainland China. Vitasoy should strive to reshape its image as a local company with a long history, rooted in China and ethnic feelings, so as to maintain the recovery of its mainland business and consolidate its market share. In this way, based on the broad market prospects of instant tea and plant-based beverage products, coupled with the rapid resumption of marketing activities, sales of Vitasoy in mainland China are expected to reach HK $3.736 billion / HK $4.091 billion / HK $4.541 billion respectively from fiscal year 2022 to fiscal year 2024.

The new variant of the virus O'Micron suppressed market sentiment and sent Hong Kong-listed food and beverage shares down. The company's interim results announcement unexpectedly sparked another round of heated debate on mainland China's mainstream social platforms, raising concerns about short-term risks to Vitasoy's brand trust and public relations handling. The operational challenges and profit uncertainties faced by Vitasoy remain. At present, the negative factors may have been fully reflected, but it is still worth waiting for the company's more visible fundamental inflection point. We maintain a "neutral" investment rating. Our new target price is HK $14.78, which is equivalent to 62.0 times forecast earnings for fiscal year 2023 and 30.0 times forecast earnings for fiscal year 2024.