The Zhitong Finance App learned that Morgan Stanley released a research report stating that it slightly lowered the target price of Chinese food (00506) by 11.8%, from HK$3.4 to HK$3, mainly due to cutting the 2024-2026 profit forecast, etc., to maintain the rating “in sync with the market.”

The bank pointed out that it will lower China Foods' 2024-2026 earnings forecast by 4-5%, mainly reflecting: 1) the sales forecast was lowered by 12-13%, taking into account factors such as weak recovery in food and beverage demand, weak sales of carbonated beverages, and drinking water price competition; 2) Lowering the gross margin assumption for 2024 by 0.8 percentage points to lower 2025 and 0.3 percentage points for 2025 and 2026, respectively; 3) As the company reduces promotional activities, it will reduce operating expenses assumptions by 1.2-1.4 percentage points.

The basic assumption for Chinese food is that demand for carbonated beverages is still weak recently, but the company's overall operations are still steady, and sales have recorded a moderate increase in sales. Profit margins are gradually increasing. Sales are expected to grow at a CAGR of -1% in 2023-2025, and profit CAGR of 1% during the same period.