Income remained resilient in the first half of 2020. Due to the significant impact of the epidemic in the first quarter, overall Chinese food sales fell 5.9 per cent in the first half of 2020 compared with the same period last year, while sales revenue fell only 1.6 per cent year-on-year to 9.401 billion yuan. Of this total, soda sales rose 3.4 per cent from a year earlier to 7.382 billion yuan, but sales of fruit juices and bottled water both recorded double-digit year-on-year declines. Due to weak PET prices and higher sales of high-margin products, the company's consolidated gross margin improved 3.1 percentage points to 38.7% in the first half of 2020, offset by an increase in sales expenses. Due to an one-time compensation income of 96 million yuan and a number of government subsidies, the company's shareholder net profit in the first half of 2020 rose 13.8% year-on-year to 330 million yuan, better than expected.

Soda sales of Chinese food keep rising in volume and price. As an absolute leader in the carbonated soft drinks industry, Coca-Cola Company further optimizes his product portfolio to meet the escalating consumer demand. Sales of sugar-free and fiber + series of Chinese foods increased by nearly 50 per cent year-on-year, while sales of modern cans and mini cans rose nearly 60 per cent year-on-year.

The expansion of new products is accelerating. China Food launched 20 new beverage products in the first half of 2020, accounting for more than 10% of sales. Looking to the future, the company will also continue to expand the diversified channel layout, offline to online global reach consumers.

China Foods is expected to achieve 2020 annual income unit growth guidance. We also believe that the company's profits will maintain steady growth in 2020-2022. We maintained a "buy" rating, but in view of the incomplete end of the epidemic and weak market sentiment, we lowered our target price to HK $3.45, equivalent to a price-to-earnings ratio of 2020-2022.