The total revenue of Vitasoy in fiscal 2022 was in line with our previous estimates, but the profit margin was lower. In fiscal year 2022, sales in mainland China fell 23.4 per cent year-on-year to HK $3.838 billion, attributed to the continuing impact of the COVID-19 epidemic and the impact of the public relations crisis in July 2021 on mobile sales in the first half of fiscal 2022. Notably, the year-on-year decline in sales in mainland China in renminbi terms narrowed to 15 per cent in the second half of fiscal 2022. In local currency terms, revenue in Hong Kong, Australia, New Zealand and Singapore recorded year-on-year growth of 4% / 12% / 2% respectively.
Gross profit margin for fiscal 2022 fell 5.4 percentage points year-on-year to 47.2%. EBITDA plunged 73 per cent year-on-year to HK $340 million.
Overall, Vitasoy reported a net loss of HK $159 million for shareholders in fiscal year 2022.
Vitasoy is expected to record solid revenue growth and resilient gross margins from the second half of fiscal year 2023. We estimate that the sales of Vitasoy in mainland China will reach HK $4.069 billion / HK $4.475 billion / HK $4.945 billion respectively in the 2023-2025 fiscal year. Revenue in overseas markets will maintain solid growth momentum. In view of the high cost of raw materials, management plans 1) cooperate with strategic partners (suppliers) to consolidate long-term procurement agreements, 2) broaden the regional scope of bulk material procurement, and 3) implement product price increases.
Maintain "neutral". For Vitasoy, challenges remain, especially due to weak consumer sentiment and soaring cost pressures. It is worthwhile to wait for the company's more visible fundamental inflection point, and the negative factors should already be reflected in the stock price.
We lowered our earnings forecast to a target price of HK $13.20 based on DCF valuation, corresponding to a price-to-earnings ratio of 44.0 times forecast earnings for fiscal year 2024 and 24.0 times forecast earnings for fiscal year 2025.
Mainland China business recovered in the second half of fiscal year 2022. Total revenue of Vitasoy in fiscal 2022 shrank by 13.5 per cent year-on-year to HK $6.501 billion, which was 0.4 per cent lower than our previous forecast in our previous company report released on December 2, 2021. Of this total, sales in mainland China in fiscal year 2022 decreased by 23.4% (in RMB: 28% year on year) to HK $3.838 billion, attributed to 1) the continuing impact of COVID-19 's epidemic and 2) the impact of the public relations crisis in July 2021 on the company's peak sales in the first half of fiscal 2022. Thanks to the rebound in brand image, the year-on-year decline in the second half of fiscal 2022 narrowed to 15 per cent in renminbi terms. The share of sales in mainland China fell 7.6 percentage points year-on-year to 59.0 per cent in fiscal 2022. In addition, in terms of local currencies, revenue in Hong Kong, Australia, New Zealand and Singapore recorded year-on-year growth of 4% / 12% / 2% respectively.
The net loss of shareholders is in line with the company's profit warning issued on May 12, 2022. Due to falling sales, high raw material prices and promotion costs, Vitasoy's gross profit margin fell 5.4 percent year-on-year to 47.2 percent in fiscal 2022. In fiscal year 2022, sales management expenses were basically flat, but they accounted for an increase in total revenue. In fiscal 2022, EBITDA fell 73 per cent year-on-year to HK $340 million, while Vitasoy reported a net loss of HK $159 million (fiscal year 2021: HK $548 million) for shareholders in fiscal 2022, in line with an earlier profit warning.
Business in mainland China is expected to return to profitable growth from the second half of fiscal year 2023. Global per capita consumption analysis shows that VITASOY and VITA, the core brands of Vitasoy, still have a lot of room for growth. We expect mainland China to further relax epidemic-related restrictions from the second half of 2022 to 2023. As a result, ready-to-drink channels in the Chinese beverage market are expected to see relatively stronger demand. For the company, we believe that the company can seize the opportunity to focus on: 1) accelerate product innovation in major markets such as South / Central / East China, and 2) expand and expand into markets such as North China / West China. In addition, Vitasoy is trying to reshape its image as a local company with a long history, rooted in China and rich in ethnic feelings. With the resumption of marketing activities, the company's revenue from mainland China is expected to reach HK $4.069 billion / HK $4.475 billion / HK $4.945 billion respectively in the 2023-2025 fiscal year. At the same time, we believe that Vitasoy will be able to grab more market share through its balanced distribution channels.
Overseas markets maintain solid growth momentum. In Hong Kong, local consumer demand has rebounded since fiscal year 2022, and the consumer voucher scheme is expected to further stimulate consumer sentiment in fiscal year 2023. Although the "easy-to-return" and "easy-to-come" travel arrangements have very limited positive impact on Hong Kong inbound visitors at this stage, in view of the increase in the number of cross-boundary visitors due to quarantine-free cross-boundary travel or imminent arrival, we are optimistic about the retail environment in Hong Kong after 2023. As most schools and universities in Hong Kong have resumed face-to-face teaching and learning, we expect the business of the school and commissary to continue to resume. For Vitasoy, management should launch more new products in Hong Kong (the supply chain has returned to normal after the outbreak) to drive sales growth. In overseas markets, thanks to accurate brand positioning and customized product portfolios, we expect revenue from Australia and New Zealand and Singapore to record an average three-year compound growth rate of 9.7% and 4.0%, respectively, between fiscal year 2022 and fiscal year 2025.
To cope with rising costs. According to the National Bureau of Statistics, the average price of soyabeans in the first quarter of 2023 was 9 per cent higher than in fiscal 2022. The average price of white sugar in the first quarter of fiscal 2023 was 5 per cent higher than that of fiscal 2022. In view of the high cost of raw materials, management plans 1) cooperate with strategic partners (suppliers) to consolidate long-term procurement agreements and lock in prices to a certain extent in advance, 2) broaden the regional scope of bulk material procurement, and 3) implement product price increases. Combined with the scale effect of the rebound in overall sales, Vitasoy should be able to show gross margin resilience in fiscal year 2023.
Maintain "neutral". The total revenue of Vitasoy in fiscal 2022 is in line with our expectations, but the profit margin is lower. While the year-on-year decline in sales in mainland China narrowed in the second half of fiscal 2022, challenges remain for Vitasoy, especially due to weak consumer sentiment and soaring cost pressures. At this stage, the company's valuation is not very attractive, and it is worthwhile to wait for the company's more visible fundamental inflection point. However, we believe that the negative factors should also be reflected in the stock price. To sum up, we maintain a "neutral" investment rating. We lowered our earnings forecast to a target price of HK $13.20 based on DCF valuation, corresponding to a price-to-earnings ratio of 44.0 times forecast earnings for fiscal year 2024 and 24.0 times forecast earnings for fiscal year 2025.