According to the Zhixun Finance APP, CICC released a research report stating that the company's dividend yield is approximately 5.9%. It maintains a 'Outperform Industry' rating for Want Want China (00151). Considering weak demand, the profit forecast for the fiscal years 24/2025 is lowered from 6.0%/7.1% to 4.19/4.29 billion yuan respectively; corresponding target price is reduced by 8.6% to 5.3 Hong Kong dollars. The company announced 1HFY24 performance: revenue of 10.877 billion yuan, -3.5% year-on-year; net profit attributable to the parent company of 1.863 billion yuan, +7.6% year-on-year; performance slightly below market expectations, mainly due to weak performance in ice products and lower-than-expected increase in operating margin.

CICC's main points are as follows:

Rice and dairy beverages performed better than snack food, contributing to growth overseas and through new channels.

In 1HFY24, the company's revenue was under pressure due to weak demand. By category, in 1HFY24, revenue for rice products, dairy drinks, and snack foods decreased by -0.2%, -1.4%, and -9.9% respectively year-on-year. Specifically: 1) Rice product sales grew in low single digits year-on-year, with stable growth mainly due to product structural reasons. Overseas and emerging channels both achieved double-digit growth compared to the same period last year, showing remarkable performance; 2) Demand for dairy drinks was slightly under pressure due to weak demand, with active expansion into new channels and new products. E-commerce content and OEM channels saw double-digit growth year-on-year, while canned milk and beverages both experienced slight increases in low single digits; 3) Snack food was under pressure due to the lag in ice product sales caused by the pace and weather, as well as reduced candy sales due to fewer weddings. By channel, traditional channel sales in the first half of the fiscal year decreased by low single digits year-on-year, overseas markets increased by double digits, and emerging channels saw rapid growth, with snack sales in the convenience store segment continuously increasing.

Cost reductions continue to drive profits, with profit margins improving in the first half of the fiscal year.

Benefiting from lower prices of imported full cream milk powder, tinplate, raw paper, and other raw materials, the company's gross margin improved by 2.1 percentage points in 1HFY24. Specifically, rice/dairy/snack gross margins decreased by -2.0/+3.0/+1.3 percentage points respectively. The decrease in rice margin was mainly due to the company strategically launching a sub-brand to address competition. Leveraging excellent cost control capabilities, operating expenses in 1H decreased by 2.2% year-on-year, with expenses seeing a slight increase of 0.4 percentage points due to revenue pressure. Overall, operating margin and net margin in 1HFY24 increased by +1.4/1.8 percentage points year-on-year, with a higher increase in net margin mainly due to optimized financial expenses as the company gradually replaced US dollar borrowings with renminbi borrowings starting in fiscal year 23.

The second half of the fiscal year is expected to maintain steady revenue, with stable profit margins.

According to grassroots research conducted by the bank, the sales performance of various product categories in October was stable, showing improvement compared to the previous period, and the company is actively preparing for the Spring Festival sales. The bank expects the company's revenue to maintain steady growth in the second half of fiscal year 24, benefiting from the continuous expansion of overseas and emerging channels, and the company's increased marketing promotion during the Spring Festival is expected to capitalize on the current trend of consumer focus on festive peak seasons. On the profit side, although the recent significant increase in the price of Hengten Food's large package flour prices, the company has currently secured low-priced inventory for the next 6 months, while other cost prices have remained relatively stable year-on-year. The bank expects the gross margin and net margin in the second half to maintain relatively stable levels despite the high base numbers.

Risk

Weak demand, intensifying competition, and significant upward pressure on raw material prices.