Forecast 1H20 profit to rise 8% year on year
We expect Chinese food revenue to fall 2.5% year-on-year in the first half, and net profit to rise 8% year-on-year, exceeding market expectations.
Pay attention to the main points
The soda recovery in the first half of the year is better than expected and is expected to record positive growth. According to our grassroots research, the company's revenue suffered the most in February, with a decline of up to 50%. The decline narrowed in March, stopped falling in April, and accelerated in May and June. As the home consumption property of soda is stronger than that of other materials, we judge that it recovers faster. Our channel survey shows strong soda growth in May-June, with slim can and mini cans showing eye-catching performance. we expect 2Q growth to make up for February-March losses, and soda revenue in the first half of the year is expected to record low-digit positive growth. We expect that non-soda drinks 1H20 may still decline, but May-June is also in rapid recovery, in which tea drinks perform better than fruit juices and water. Overall, the company recovered well in the second quarter, and we expect revenue to decline slightly by 2.5% in the first half compared with the same period last year. Our channel research shows that the company's current channel inventory level is healthy, and the company's revenue in various categories in the second half of the year is expected to continue to recover in May and June. Under the background of the normalization of the epidemic, we expect 2H20 revenue to return to high single-digit growth.
The price of raw materials is good. Profit margins increased in the first half of the year. The price of PET particles has fallen by more than 30% year-on-year since mid-March, as the company's PET bottle packaging accounts for nearly 70%. Pet is one of the company's main raw materials. We judge that the benefit PET price downward 2Q gross margin is expected to improve significantly, in the first half of the year we expect the gross margin increase is expected to exceed 2ppt. Considering that the company is still spending in accordance with its previous budget in the first half of the year, we expect an increase in 1H20 expense rate, which will partially offset the increase in gross profit margin, and we expect 1H20 net profit margin to increase 0.8ppt. Considering that PET prices may remain low in the second half of the year, we expect 2H20's gross profit margin to continue year-on-year, driving overall profit margins up, corresponding to full-year profit growth of about 15%, with a solid profit performance.
Other categories perform steadily, which is good for long-term growth prospects. In recent years, the company continues to promote the core soda category of high-end and healthy, consolidate the core competitive advantage, while actively layout other sub-categories. This year is the fourth year of Monster's entry into China. Our grassroots research shows that it still grew slightly in the first half of the year under the influence of the epidemic, and we expect the product to pick up growth again in the second half of the year, further increasing its penetration in the Chinese market.
The feedback of Sunshine Lemon Tea pilot in Beijing in the first half of the year is good, and we judge that the product is expected to expand its regional coverage in the second half of the year. At the same time, the company has opened the layout of coffee, sugar-free tea and other products, we are optimistic about the diversified development prospects, good long-term growth prospects of the company.
Valuation and suggestion
The company trades at 14.5 Universe 12.9 times 2020 Sterling's 21-year P / E ratio. Considering that the company's overall gross profit margin may be higher than we had expected, raise the profit forecast for 2020 Universe by 7.8% to RMB 4.8 billion, and increase the target price by 5.9% to HK $3.6 accordingly, corresponding to 18.8 Sterling, 16.8 times the 21-year price-to-earnings ratio and 28.1% upside. Maintain an industry rating that outperforms.
Risk.
Raw material prices have risen sharply, and competition has intensified.