VITASOY INT'L (00345.HK) announced its full-year results for the year ending in March this year on Tuesday (24th), with a net profit of 0.235 billion yuan, an increase of 101.7% year-on-year; revenue of 6.274 billion yuan, an increase of 0.9% year-on-year. A report from CLSA indicated that VITASOY INT'L's net profit for fiscal year 2025 is 4% lower than their forecast. Additionally, due to increased competition in China's beverage industry, the firm lowered its discounted cash flow (DCF) benchmark based on an unchanged 8.1% weighted average cost of capital (WACC) and revised its Target Price from 9.6 yuan to 9.4 yuan, maintaining a 'Hold' rating.
The report noted that CLSA observed intensified competition in the beverage industry in mainland China, with several leading companies engaging in marketing campaigns and offering lucky draw activities, allowing customers to repurchase products at very low prices (such as 1 to 2 yuan per bottle). VITASOY stated that, in response to competition, it intends to reduce the price of VITASOY Tea by 10% to 15% in the second half of fiscal year 2024, but it does not plan further price reductions and aims to expand market share through improved execution, innovation, and distribution. CLSA indicated that although the strategy seems to have long-term prospects, it requires time, thus remaining cautious about its short-term sales performance.
CLSA believes that VITASOY will achieve significant net profit margin expansion in fiscal year 2025, primarily due to favorable raw material costs and improved production and operational efficiencies, with plans to maintain annual sales and profitability in fiscal year 2026. The savings in marketing costs for VITASOY in the short term could become a driving factor for stable profitability.
Considering the performance in the second half of fiscal year 2025 and the pressures of increased competition in mainland China, CLSA has reduced its sales and net profit forecasts for VITASOY for fiscal years 2026 and 2027 by 5% and 17%, respectively.
