China Food's performance in 2019 was better than expected. In 2019, the company's revenue rose 9.7% year-on-year to 17.172 billion yuan, and sales increased 6% year-on-year. In 2019, China's income from food soda, bottled water and fruit juice increased by 10.4%, 14.3% and 0.6% respectively compared with the same period last year. China's food gross margin rose 1.1 percentage points year-on-year to 36.5% due to growth in sales of high-margin products, improved packaging structure and lower value-added tax rates. The company's gross profit margin rose 1.9 percentage points in the second half of 2019 compared with the same period last year. China Foods' adjusted EBIT for the whole of 2019 increased by 33.4% to 1.025 billion yuan. The net profit attributable to shareholders in 2019 was 418 million yuan, an increase of 30.2% over the same period last year.

Fully benefit from the prosperity of the soda market; the product structure will continue to upgrade. As an absolute leader, China Food has fully benefited from the growth of carbonated drinks in China, and it has even gained more market share. Soda products have become more diversified, providing more opportunities for leading enterprises. The product structure of Chinese food has the potential to continue to improve. COVID-19 epidemic has significantly affected the company's sales. The short-term performance of Chinese food is highly related to the progress of the epidemic.

Due to lower profit forecasts and uncertainty about the progress of COVID-19 's epidemic, we lowered our target price to HK $3.80. But excluding the impact of the epidemic, the company has improved revenue growth and improved profitability. Under the support of Coca-Cola Company's strong innovation ability, the company will launch more new products. And its valuation is relatively attractive to the industry. So we maintained our "buy" rating but lowered our target price to HK $3.80, which is equivalent to 21.5 times, 17.9 times and 16.4 times 2020, 2021 and 2022 P / E ratios.